Abstract

Financial constraints are one of the most important obstacles for businesses particularly in less–developed and developing economies. Collateral requirements are frequently addressed as one the most important obstacles to starting and running a business especially for small and medium enterprises (SMEs), in these countries. This thesis consists of four empirical papers each corresponding to a chapter on loan markets in less-developed economies. After the introduction chapter, the second chapter investigates both the presence of collateral and the collateral to loan ratios on loans extended to SMEs are examined. The informal credit mostly serves credit-constrained borrowers (mostly SMEs, poor households, informal businesses, borrowers in rural areas that are located far from formal creditors, and people who are not able to meet collateral requirements of formal creditors) in the formal financial markets. The third chapter aims to understand why and to what extend SMEs use informal credit from various sources, moneylenders and family/friends and suppliers/customers as forms of informal credit. The fourth chapter examines the financial constraints faced by female entrepreneurs. The primary data source in these second, third and fourth chapters is the Business Environment and Enterprise Performance Surveys which are mainly based on Eastern European and Central Asian countries. These surveys are joint projects of the European Bank for Reconstruction and Development and the World Bank. Chapter five of this thesis takes a different strand and focuses on the effect of banks’ market power on banks’ risk. The empirical analysis is based on data from Turkish banks and helps to shed light on the relation between market power and financial stability. Finally chapter six highlights the main conclusions and addresses potential future research directions.