Paper
Credit Markets, Creditors Rights and Economic Development
Law at work in credit markets
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23 pages
This working paper is part of a book on law and economic development. It explores the relationship between credit markets, creditors' rights and economic development. The paper makes the following statements:
- Privately owned banks are vulnerable to directed lending, crony capitalism, related lending and problems related to corporations;
- The law on creditors' rights and the 'bankruptcy law' affect the strength of the financial sector in the credit arena;
- Efficient bankruptcy procedures can enhance the willingness of creditors to lend and can make the exit of doomed firms faster and less damaging to creditors;
- The greatest barrier to greater use of credit in developing countries is making collateral legally available for secured lending;
- Facilitating greater use of secured credit involves establishing substantive law supporting pledges of movable property and establishing collateral registries;
- An important issue for the creation of a strong financial sector involves the kinds of property in which a creditor can obtain a security interest.
The paper concludes that:
- The less financially developed an economy is, the more important is the improvement in secured transaction law, as opposed to bankruptcy law;
- Credit registries play an important role in credit markets by facilitating the sharing among creditors of information concerning borrowers.
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