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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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  • J. Rodrigo Fuentes & Carlos Maqueira, 1999. "Institutional Arrangements to Determine Loan Repayment in Chile," Research Department Publications 3073, Inter-American Development Bank, Research Department.
  • Handle: RePEc:idb:wpaper:3073

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    References listed on IDEAS

    1. Pagano, Marco & Jappelli, Tullio, 1993. " Information Sharing in Credit Markets," Journal of Finance, American Finance Association, vol. 48(5), pages 1693-1718, December.
    2. James, Christopher, 1987. "Some evidence on the uniqueness of bank loans," Journal of Financial Economics, Elsevier, vol. 19(2), pages 217-235, December.
    3. Lummer, Scott L. & McConnell, John J., 1989. "Further evidence on the bank lending process and the capital-market response to bank loan agreements," Journal of Financial Economics, Elsevier, vol. 25(1), pages 99-122, November.
    4. Benston, George J & Smith, Clifford W, Jr, 1976. "A Transactions Cost Approach to the Theory of Financial Intermediation," Journal of Finance, American Finance Association, vol. 31(2), pages 215-231, May.
    5. Avery, Robert B. & Bostic, Raphael W. & Samolyk, Katherine A., 1998. "The role of personal wealth in small business finance," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 1019-1061, August.
    6. La Porta, Rafael & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. " Legal Determinants of External Finance," Journal of Finance, American Finance Association, vol. 52(3), pages 1131-1150, July.
    7. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    8. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
    9. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
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    11. Tullio Jappelli & Marco Pagano, 1999. "Information Sharing in Credit Markets: International Evidence," Research Department Publications 3069, Inter-American Development Bank, Research Department.
    12. repec:hrv:faseco:30728041 is not listed on IDEAS
    13. Altman, Edward I, 1984. " A Further Empirical Investigation of the Bankruptcy Cost Question," Journal of Finance, American Finance Association, vol. 39(4), pages 1067-1089, September.
    14. 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.
    15. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    16. Cole, Rebel A., 1998. "The importance of relationships to the availability of credit," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 959-977, August.
    17. Padilla, A Jorge & Pagano, Marco, 1997. "Endogenous Communication among Lenders and Entrepreneurial Incentives," Review of Financial Studies, Society for Financial Studies, vol. 10(1), pages 205-236.
    18. Smith, Clifford Jr. & Warner, Jerold B., 1979. "On financial contracting : An analysis of bond covenants," Journal of Financial Economics, Elsevier, vol. 7(2), pages 117-161, June.
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    Cited by:

    1. Galarza, Francisco, 2003. "El crédito solidario, el colateral social, y la colusión. Algunos apuntes
      [Group Lending, Social Collateral and Collusion. Some Notes]
      ," MPRA Paper 30442, University Library of Munich, Germany.

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