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Institutional Arrangements to Determine Loan Repayment in Chile

  • J. Rodrigo Fuentes
  • Carlos Maqueira

The major objective of this paper is to investigate institutional arrangements as a determinant of loan repayment in the Chilean financial market. A second aim is to analyze the effects of these arrangements on borrowers’ behavior. Although La Porta et al. (1997, 1998) classify Chile as a French Civil Law country, the law and private arrangements have evolved consistently with the capital market development to protect the rights of the creditors. This is consistent with relatively low rates of bad loans, ranking from 1. 1 to 2. 0 percent in 1993-1997. We examine different variables which may be related to loan repayment: (a) limitations on the access to credit, (b) macroeconomic stability, (c) collection technology, (d) bankruptcy code, (e) information sharing, (f) the judicial system, (g) prescreening techniques and (h) major changes in financial market regulation. Based on the discussion presented in the paper plus regression analyses, we conclude that a satisfactory performance of the Chilean credit market, in terms of loan repayments and credit market development, hinges on a good information sharing system, an advanced collection technology, a good macroeconomic performance, credit market development and major changes in financial market regulation.

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Paper provided by Inter-American Development Bank, Research Department in its series Research Department Publications with number 3073.

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Date of creation: Sep 1999
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Handle: RePEc:idb:wpaper:3073
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  1. Altman, Edward I, 1984. " A Further Empirical Investigation of the Bankruptcy Cost Question," Journal of Finance, American Finance Association, vol. 39(4), pages 1067-89, September.
  2. Pagano, Marco & Jappelli, Tullio, 1993. " Information Sharing in Credit Markets," Journal of Finance, American Finance Association, vol. 48(5), pages 1693-1718, December.
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  11. Diamond, Douglas W, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 393-414, July.
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  13. Julian R. Franks & Kjell G. Nyborg & Walter N. Torous, 1996. "A Comparison of UK, US and German Insolvency Codes," Financial Management, Financial Management Association, vol. 25(3), Fall.
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  17. James, Christopher, 1987. "Some evidence on the uniqueness of bank loans," Journal of Financial Economics, Elsevier, vol. 19(2), pages 217-235, December.
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