ANALYZING THE IMPACT OF AVAILABILITY OF FINANCE FOR DEALERS IN SECOND HAND VEHICLE MARKET

Principal Investigators: Prof. Antoinette Schoar (MIT USA), Prof. Rajkamal Iyer (MIT USA)
Research Team: Matt Chittaranjan
LEAD Centre: Small Enterprise Finance Centre (SEFC)
Focus Area: SME Finance
Project Geography: Across India
Partner: Update Soon!!!
Status: Update Soon!!!

Background:

One of the factors arresting growth in the second hand market for commercial vehicles is credit constrained intermediaries. It is estimated that only 10% of brokers have access to bank financing, while the majority rely on non-institutional financing that often carries above-market interest rates. We are currently undertaking a pilot program to test the impact of providing short-term bank loans to brokers participating in used vehicle auctions. In particular, we are interested to see if increased access to financing leads to higher prices as more brokers are induced to participate and those that do bid more aggressively. We are also testing whether higher prices have secondary effects on the new vehicle market. Most vehicles on the second-hand market are repossessed assets, and higher recovery rates on non-performing vehicle loans may lead banks to increase the volume of new vehicle lending. Findings from this study can help understand how access to credit can help in other second hand markets such as commercial machinery for SMEs.