Insurance as a stabilizer: SME credit access during the COVID-19 crisis

Abstract This paper investigates the role of insurance coverage in promoting access to credit for micro, small, and medium-sized enterprises (MSMEs) in the aftermath of the COVID-19 pandemic. The relationship between risk management strategies, credit availability, and small firm dynamics is sparsely analyzed in the literature, particularly given the characteristic data limitations of small businesses. Using a comprehensive sample of 1,998 Italian MSMEs, drawn from a 2021 Bank of Italy survey, we estimate the effect of insurance coverage on the probability of obtaining credit. We find that higher insurance coverage positively and robustly affects access to credit. These results remain persistent after controlling for potential endogeneity and undergoing multiple robustness checks. Our findings provide novel evidence by demonstrating that insurance functions as a stabilizing mechanism for MSMEs, safeguarding them against risks during macroeconomic shocks and thus increasing their creditworthiness. This study enriches the literature on the credit channel of risk transfer and provides timely insights into the relationship between firms and financial intermediaries during periods of high economic uncertainty.