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Periodical article | Leiden University catalogue | WorldCat |
Title: | Accessing Bank Credit in Eritrea: Bottlenecks for Small Firms and the Commercial Bank of Eritrea |
Authors: | Eije, Henk von Fishazion, Michael Lutz, Clemens |
Year: | 2002 |
Periodical: | Journal of Eritrean Studies (Asmara) |
Volume: | 1 |
Issue: | 1 |
Pages: | 59-74 |
Language: | English |
Notes: | biblio. refs. |
Geographic terms: | Eritrea Northeast Africa |
Subjects: | banking credit small enterprises Development and Technology Economics and Trade Economics, Commerce Banks and banking Small business Commercial Bank of Eritrea |
Abstract: | The Commercial Bank of Eritrea (CBE) deploys only 29 percent of the funds collected from its depositors. At the same time a lack of finance for small firms in Eritrea is an important obstacle in the development of the country. The paradox of the concomitant existence of ample money in the bank and scarcity of money with small firm owners can be explained by asymmetric information. Six mechanisms to overcome asymmetric information are presented. Besides traditional banking instruments such as collateral and covenants, business relationships, ownership, reputation and human capital can assist in bridging the information gap. Interviews conducted in 2000 with bank and monetary officials, as well as managers of small enterprises, revealed that the sole relevant mechanism in reducing asymmetric information in Eritrea was collateral, and that the collateral requirements were high. The other mechanisms had little impact. Moreover, the scope of the problem was wider than asymmetric information theory suggests. Mutual mistrust, conservatism and rigid credit policies of the CBE, a lack of accounting knowledge within small firms, and general development related problems also played a role. Bibliogr., notes, sum. [Journal abstract] |