Download Here
view point NOTE NUMBER 307 THE WORLD BANK GROUP PRIVATE SECTOR DEVELOPMENT V ICE P RESIDENCY MARCH 2006 Collateral matters: when businesses use collate ral to secure loans, lenders give them … .. better terms. Take the example of Banco Solidario in Bolivia, secure personal loans one of the most successful microfinance banks in Latin America. When borrowers offer collateral, BancoSol provides larger loans (relat ive to income), longer repayment periods, and lower interest rates (figure 1). 1 Collateralized loans are the most common lending contract in the …
Collateral matters: when businesses use collateral to secure loans, lenders give them better terms. Take the example of Banco Solidario in Bolivia, one of the most successful microfinance banks in Latin America. When borrowers offer collateral, BancoSol provides larger loans (relative to income), secure personal loans longer repayment periods, and lower interest rates (figure 1).1 Collateralized loans are the most common lending contract in the formal financial sector. In low- and middle-income countries 70-80 percent of loans require some form of collateral.2The same holds true in high-income countries: in the United States, for example, 70 percent of loans are secured by collateral.3This makes sense from a lender’s perspective: loan contracts can be more easily enforced when secured by property.