How legal restrictions on collateral limit access to credit in Bolivia
Garg, Prem
In Bolivia, banks supply most of the loans to the private sector. Bolivian banks usually accept only real estate as collateral for these loans, or the personal guarantee of someone who owns real estate. They usually will not accept inventory, accounts receivable, livestock or industrial equipment as collateral without demanding a supplemental guarantee based directly or indirectly on the ownership of real estate. These policies limit access to credit, limit small business growth, limit bank lending, make non-bank credit very expensive, and deprive both lenders and borrowers of due process of law by substituting sanctions of the criminal law for civil enforcement of contracts. Broadly, these lending polices lead to high interest rates, low volumes of lending, investment rates that fall short of socially profitable needs, and lower output and incomes. The report suggests that addressing this problem requires revising Bolivian laws, improving legal registry systems for those commercial and civil contracts that create security interests, and speeding up the process for settling claims.
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