When do creditors' rights work?

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There's much talk about the need for creditor-friendly laws in order to provide more capital to private sector. But how much is a better lenders' right to collateral worth in an absence of effective enforcement?

Mehnaz Safavian and Siddharth Sharma in a new World Bank paper answer exactly that question. They find that a 25 percent increase in the Doing Business creditor rights index will raise the share of bank loans in firm investment by 27 percent if the courts are fast, but by only 7 percent in a country with slow courts.


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