Access to Versus Use of Loans: What Are the True Determinants of Access?

Abstract: Access to finance is a prerequisite for economic development. Existing studies measure access by the use of finance. We develop a direct measurement for access to finance, using data from the Business Environment and Enterprise Performance Survey 2005 data. Thereby we determine whether a firm without a loan is indeed credit-constrained or merely does not have demand for external finance and control for potential selection bias. We show considerable differences between the determinants of access and the determinants of use. This implies the conclusion that analyzing information on the use of finance is not sufficient to identify financially constrained firms.