Private banking and crony capitalism in Egypt

Abstract

AbstractWhy do private banks lend preferentially to politically connected firms? Focusing on the case of Egypt during the later years of Mubarak's rule, we identified politically connected firms, and we documented, using the Orbis corporate data on large firms in Egypt, that they received a disproportionate amount of the loans going to the private sector during 2003–11. We then investigated the determinants of their borrowings, and we found evidence that connected firms were more attractive to banks both because they made larger profits, and because they were seen to be implicitly guaranteed by the state against failure. We also found evidence that non-connected firms had a lower demand for loans.