Development that Works
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    This blog highlights effective ideas in the fight against poverty and exclusion, and analyzes the impact of development projects in Latin America and the Caribbean.
  • Second-tier development banks: some evidence from Colombia



    In an effort to shed some light on the effectiveness of government-owned development Banks, the Institutions for Development Sector (IDS) at the IDB financed two studies on the impact of Bancoldex, the second-tier public development Bank in Colombia.

    The two studies, which I co-authored with Marcela Meléndez and Marcela Eslava, evaluate the effect of Bancoldex on both firm performances and access to credit.

    Our results show that second-tier schemes can be an effective way to provide access to credit to financially constrained firms with good growth potential.

    Both studies find that private sector intermediation does a good job in reaching firms that are potentially good credit risks, but that also face significant financial constraints. T

    he first study finds that firms that have access to Bancoldex credit lines eventually enjoy lower average interest rates, longer terms and larger average loans. Also, these firms are able to build a credit history that allows them to expand the number of financial intermediaries they work with and, after some time, to get better credit conditions also from intermediaries not supported by Bancoldex.

    These improved credit conditions translate also into improved performance. In fact, although using only a subsample of beneficiaries (i.e. manufacturing firms with 10 or more employees), the second study finds significant positive effects on production (24 percent), employment (11 percent), investment (70 percent), and productivity (around 10 percent) over the four years that followed the first Bancoldex’ loan.

    In both studies we adopted a combination of matching techniques and fixed effects panel regressions and we took advantage of exiting administrative and statistical data.

    This was possible because of the willingness of the Colombian organizations that supported the studies to provide access to data and to collaborate in establishing the mechanisms that made access possible within the strict reserve requirements that protect the data’s confidentially.

    As I mentioned in previous postings, a lot of potentially valuable information buried in administrative records is out there waiting to be used for impact evaluations!

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