The Role of Creditor Protection and Judicial Enforcement on Credit Access

The quality of the legal system matters for firms’ access to bank loans: Strong creditor and property rights and a rigorous judicial enforcement system with short, cheap and simple proceedings create favourable conditions for bank lending.

Bank loans are a primary source of financing for firms. Banks will, however, only be willing to grant a loan if they can control the borrower risk and promptly recover on the loan in the case of a borrower default. The certainty of the law and the opportunity to enforce legal rights in court support banks in dealing with delinquent customers: Strong creditor rights … Read more