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Financial literacy of micro-entrepreneurs and access to credit

Author

Listed:
  • Riccardo Calcagno

    (Polytechnic University of Turin)

  • Paolo Finaldi Russo

    (Bank of Italy)

  • Ludovica Galotto

    (Bank of Italy)

  • Anita Quas

    (University of Milan)

Abstract
This paper investigates the relationship between the financial literacy of micro-entrepreneurs and their access to bank credit, drawing on data from a survey conducted by the Bank of Italy among a representative sample of Italian companies with fewer than 10 employees. Among those who require some external finance, we explore whether micro-entrepreneurs' financial literacy influences (i) the propensity to apply for the necessary bank loan, and (ii) the likelihood of bank approval. We find that micro-entrepreneurs with higher financial literacy are more likely to apply for a loan, i.e. they are less likely to be 'discouraged borrowers'. However, financial literacy does not significantly affect the likelihood of loan approval. We also shed light on two mechanisms underlying the relationship between financial literacy and borrowers' discouragement: entrepreneurs with higher financial literacy are more likely to seek professional advice and to be aware of the existence of public guarantee schemes in support of SMEs' access to credit, which in turn improve the chances of them applying for a bank loan.

Suggested Citation

  • Riccardo Calcagno & Paolo Finaldi Russo & Ludovica Galotto & Anita Quas, 2024. "Financial literacy of micro-entrepreneurs and access to credit," Questioni di Economia e Finanza (Occasional Papers) 853, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:opques:qef_853_24
    as

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    File URL: https://www.bancaditalia.it/pubblicazioni/qef/2024-0853/QEF_853_24.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    financial literacy; access to credit; small and medium-sized enterprises; SME financing; discouraged borrowers;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G53 - Financial Economics - - Household Finance - - - Financial Literacy

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