Credit Contracts Research Articles

Retail CBDC: Implications for Banking and Financial Stability

This article reviews the literature examining how the introduction of a retail central bank digital currency (CBDC) would affect a modern economy, focusing on the implications for the banking sector and for financial stability. A CBDC can improve welfare by reducing financial frictions, countering market power in deposit markets, encouraging financial inclusion, and enhancing the payment system. However, a CBDC also entails noteworthy risks, including the possibility of bank disintermediation and associated contraction in bank credit, as well as potential adverse effects on financial stability. The recycling of the new CBDC liability through asset purchases or lending by the central bank plays an important role in determining the economic consequences of the introduction of a CBDC, raising fundamental questions about the footprint of central banks in the financial system. Ultimately, the effects of a CBDC depend critically on its design features, particularly remuneration.

Critical Analysis of The Law on Purchasing Gold on Credit

This study aims to understand the legal background of gold credit in Indonesia, we can explore more deeply how this product contributes to the development of Islamic banking, consumer protection, and financial market regulation more broadly. It also helps in identifying the challenges and opportunities faced in the implementation of Islamic financial practices in Indonesia. This writing uses a normative method where in this writing a literature search is conducted. Peter Mahmud stated that Legal Research must find a coherent truth, namely legal rules in accordance with legal norms or are there norms in the form of commands or prohibitions that are in accordance with Legal Principles and whether a person's actions are in accordance with Legal Principles or Legal Norms. Legal analysis of gold credit shows that this transaction involves various aspects that need to be considered, including the legal basis, sharia aspects (if applicable), financial risks, and legal treatment. It is important for financial institutions and customers to clearly understand their rights and obligations in gold credit contracts, and to comply with all applicable regulations to minimize risk and maintain fairness in this transaction.

The unintended interaction effect of monetary and macroprudential policies: Evidence from China’s bank-level data

We investigate the unintended interaction effect of monetary and macroprudential policies on banks’ broad credit, using Chinese bank-level data from 2005 to 2019. According to our findings, tightening both macroprudential and monetary policies simultaneously in China expands broad credit, which differs from traditional empirical findings in other countries that such policy conditions typically result in credit contraction. We reveal that the non-deposit funding channel drives the unintended surge in broad credit under the interaction of macroprudential and monetary policy.

Demand for Commitment in Credit and Saving Contracts: A Field Experiment

Abstract We conduct a field experiment in which we offer credit and saving contracts to the same pool of Pakistani microfinance clients. Additional treatments test ex ante demand for soft commitment (in the form of reminders, either to respondents or to their families), hard commitment (in the form of a penalty for missing an instalment) and flexibility (an option to postpone an instalment) to save or pay loan instalments on time. We find substantial demand for fixed repayment contracts in both the credit and savings domains, in ways that imply that respondents value the commitment required. While we find little or no average demand for additional contractual features, we nonetheless observe that different combinations of contractual add-ons are preferred depending on the respondent’s level of financial discipline. Respondents with high financial discipline prefer flexibility in credit contracts when combined with reminders to self while those with low discipline value penalties in savings contracts only when paired with reminders. Our results imply that, for the average microfinance client, demand for commitment is met through the regular payment schedule built into standard microcredit or commitment savings contracts. However, combining penalties or flexibility with reminders may appeal to certain subsets of clients.

The Role of Public Development Banks During the Pandemic: Impact Evaluation of BICE's Innovative Credit Response

ABSTRACT The global COVID-19 pandemic triggered a renewed impetus for the countercyclical role of development banks, marked by widespread adoption of diverse instruments to mitigate its impact. Argentina's development bank (BICE, Banco de Inversión y Comercio Exterior, specialized in loan for long term investment, responded to the 2020 health and economic crises implementing a working capital loan program. Amidst a lack of substantial evidence on the efficacy of similar counter-cyclical interventions, we employed a quasi-experimental methodology, incorporating Propensity Score Matching (PSM) and Fixed Effects (FE) estimations, to evaluate the program's impact. Our results demonstrate that firms benefiting from the loan maintained employment levels, in stark contrast to a nearly 6 per cent decrease for those without it. The program effectively mitigated the employment impact of the transient shock. Robustness checks, along with falsification tests, bolster our identification strategy. Complementary findings emphasize that the program's success lies in providing credit during adverse conditions, when private sector credit contracts. This insight, rather than the exceptional terms of the credit, offers a crucial lesson for the future.

Impact of credit expansion and contraction on unemployment

PurposeWe investigate the impact of private credit expansion and contraction on the unemployment rate in Economic Community of West African States (ECOWAS) countries.Design/methodology/approachCredit expansion and contraction are measured using a three-level criterion. The fixed effect panel regression model was used to estimate the impact of private credit contraction and expansion on the unemployment rate in ECOWAS countries.FindingsPrivate credit contraction significantly increases the unemployment rate in ECOWAS countries. Private credit expansion does not have a significant effect on the unemployment rate. Real GDP growth has a significant negative effect on the unemployment rate which supports the prediction of the Okun’s Law while the inflation rate has a positive and insignificant effect on the rate of unemployment in ECOWAS countries which contradicts the prediction of the Phillips curve.Practical implicationsPolicymakers in ECOWAS countries need to be cautious when introducing policies that lead to private credit contraction as it could increase unemployment. Policymakers in ECOWAS countries should also find the “threshold” below which private credit contraction will worsen the unemployment rate and introduce policy measures to ensure that private credit contraction does not fall below the threshold.Originality/valueThe literature has not examined the factors leading to tight labor markets or unemployment in West African countries.Peer reviewThe peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-12-2023-0939.

Income inequality and household debt: A U.S. state-level spatial analysis

While most agree that the 2007–2008 financial bust stemmed from an excessive credit boom, researchers disagree about the causes of the boom amid income inequality, monetary excesses, and an unregulated credit market. Empirical findings on inequality's impact on credit booms are contradictory. This paper examines the impact of income inequality on household debt, utilizing U.S. state-level data from 1999 to 2015 within macroeconomic and credit market contexts. Diverging from prior research, it provides consistent and robust estimates by using the control function approach to identify exogenous variations in inequality and employing a spatial error panel model to remove significant cross-sectional dependence. The results indicate that inequality indices have a negative or insignificant effect on household debt, while monetary policy and credit market uncertainty also affect household debt. Thus, higher inequality is linked with credit contraction rather than expansion; rising inequality does not trigger a credit boom.

Banking crises and corporate trade credit: The role of creditor protection

This study examines the impact of banking crises on corporate trade credit and the moderating role of creditor protection, using a large sample of firms from 45 countries. The findings suggest that banking crises increase firms’ reliance on trade credit due to reduced lines of credit. Moreover, strong creditor protection can weaken the adverse effect of banking crises on firms’ credit access. Our results are robust to a series of sensitivity tests. Finally, this study generates important policy implications. Policymakers should strengthen creditor rights protection to mitigate the credit contraction due to banking crises.

Land rights, bases of informal settlements and bogus contract documents as a means of urban fringe legal land transactions in Ethiopia

Rapid urbanization, particularly the horizontal expansions of towns that are land intensive creates pressures on the demand for urban land, which cannot responded through formal land access. Hence, the informal way of accessing land covers the loophole of the shortage of formal access to land but challenging to the vigorous development and growth of cities. Due to different reasons, individuals bought land informally in the urban fringe areas and take along bogus11Bogus contract documents for this study refer to a fake document made by the seller and the buyer to legalize their transaction. Although row land cannot be sold and mortgaged legally, sale and mortgage of land were done practically with other fake contract documents. contract documents as evidence of legal possession to the municipality. Therefore, the purpose of this research is to examine those bogus contract documents used as evidence of legal possession, the formalization process, and the reasons to prefer the informal root of land acquisition. To do so, simple random sampling technique to a questionnaire survey, interviews with key informants and, focus group discussions were used. The result of the study revealed that different bogus contract documents such as donation though fake document as family member, bogus credit contract, building a house without clear objection through purchase, assignment and Corruption were used for the formalization of the informal holdings. Beyond that, the formalization process, and the reasons to prefer the informal root of land acquisition were identified in the study area.

Examining supply chain financing: A comparative and coordination analysis under a buyback contract

This paper focuses on financing schemes for a supply chain with high salvage values of unsold products. Combining the buyback contract with a partial credit guarantee (PCG) contract and trade credit (TC) contract, we propose two financing schemes, PCG-Buyback and TC-Buyback, to provide flexible financing services for a capital-constrained retailer and obtain equilibrium strategies of each supply chain member. Furthermore, for PCGBuyback, this paper obtains a Pareto coordination frontier consisting of the credit guarantee coefficient and the buyback price at different initial capital levels, which is more flexible to achieve supply chain coordination. Finally, we analyze the manufacturer’s strategic choices of PCG-Buyback and TC-Buyback in terms of credit guarantee coefficient, buyback price, and financing rate. Our results show that PCG-Buyback is the optimal financing scheme for the manufacturer when both the credit guarantee coefficient and buyback price (or financing rate) are low; otherwise, TC-Buyback is the dominant strategy. This study explores how the risk-sharing mechanism combination of PCG and buyback contracts can provide a more flexible approach to supply chain coordination. Additionally, it highlights the significance of the manufacturer selecting a better financing scheme based on its individual characteristics.

Loan guarantees in a crisis: An antidote to a credit crunch?

Credit contractions are costly, but policymakers have limited tools to counter them. In this paper, we examine the efficacy of public credit guarantees as antidotes to a credit crunch by studying the Paycheck Protection Program (PPP). We find that the program averted a historic credit crunch at a time when banks were unlikely to meet firm credit needs by risking their own capital. Our evaluation incorporates selection effects emanating from banks’ participation decision on both the extensive and intensive margins. Risk-aversion, rather than profitability, motivated bank participation in the program. Indeed, even as the program boosted loan growth among participants, it attenuated profitability.

Bargaining power and trade credit: The heterogeneous effect of credit contractions

High-bargaining-power (low-bargaining-power) customer (supplier) firms borrow (lend) more trade credit according to the literature. We study whether this bargaining power effect strengthens or weakens when credit tightens. We construct a Nash bargaining model of trade credit and show that the effect weakens if the suppliers' financing costs increase more than that of the customers and strengthens if the opposite is true. We find support for model predictions using a unique database of listed firms in China that discloses firms' transaction information with important customers and suppliers. Interest-rate sensitive suppliers, proxied by a non-state ownership, a high debt rollover risk, and a high financial constraint index, reduce trade credit to their high-bargaining-power customers during credit contractions, while interest-rate sensitive and high-bargaining-power customers, proxied by similar indices, borrow more trade credit.

Trade credit contracting in a risk-averse supply chain under adverse selection and moral hazard

Trade credit, as an effective tool for integrating and coordinating material, information, and financial flows in supply chain management, is becoming increasingly widespread. We explore how a manufacturer can design optimal trade credit contracts when a risk-averse retailer hides its sales cost information (adverse selection) and selling effort level (moral hazard). We develop incentive models for a risk-averse supply chain when adverse selection and moral hazard coexist, which are then compared with the results under single information asymmetry (moral hazard). Moreover, we analyze the effects of private information and risk-aversion coefficient on contract parameters, selling effort level and the profit or utility of the supply chain. The study shows that when the degree of retailer’s risk aversion is within a certain range, reasonable trade credit contracts designed by the manufacturer can effectively induce the retailer to report its real sales cost and encourage it to exert appropriate effort. Furthermore, we find that the optimal trade credit period, optimal transfer payment, and retailer’s optimal sales effort level under dual information asymmetry are less than under single information asymmetry. Numerical analysis are conducted to demonstrate the effects of the parameters on decisions and profits.

Climate-change regulations: Bank lending and real effects

We analyze how capital requirements from environmental risk exposure affect bank lending to the corporate sector, and how these effects transmit to real economic activity and to greenhouse gas emissions. To do so, we exploit the introduction of a policy in Brazil that required banks to incorporate environmental risks in their capital assessments. Using comprehensive credit data, we find that the policy induces large banks to reallocate their lending away from exposed sectors. The credit contraction has no substantial impact on the real activity and greenhouse gas emissions of these sectors, as smaller banks expand their lending afterwards. However, the policy triggers a moderate labor reallocation from small firms (i.e., those with higher costs of switching lenders) and into large firms within environmentally exposed sectors.

Effects of the CJEU decision in case C-520/21 on consumer compensation for damages caused by abusive clauses used in bank credit contracts

After the pronouncement of the Decision of the Court of Justice of the European Union in Case C-520/21, we can observe evolution of the conditions and the ways in which the restoration to the situation prior to the cancellation of the abusive clauses in the bank loan contract with the consumers is carried out, as well as the ways in which it is carried out compensation for damage caused by the professional’s use of abusive clauses.The purpose of this article is to document the scope of these changes in the eventuality of harmonizing national legislation to update legal protection for consumer rights, regarding the effects of this decision regarding the ,,nullity of protection” and from the perspective of the effects of this decision regarding the right of the parties to the credit agreement to request damages in the event of the cancellation of the credit agreement.

Repayment Flexibility and Risk Taking: Experimental Evidence from Credit Contracts

Abstract A widely held view is that small firms in developing countries are prevented from making profitable investments by lack of access to credit and insurance markets. One solution is to provide repayment flexibility in credit contracts. Repayment flexibility eases both the credit constraint, as it allows for increased spending during the start-up phase, and offers insurance, in case of fluctuations in income. In a field experiment among traditional microfinance clients and larger collateralized borrowers in Bangladesh, we randomly assign the option to delay up to 2 monthly repayments at any point during a 12-month loan cycle. The flexible contract leads to substantial improvements in the traditional microfinance clients’ business outcomes, driven by borrowers in the upper tail of the distribution. In addition, we find a significant impact on socio-economic status, combined with lower default rates. We show theoretically and empirically that these effects are induced by an increase in entrepreneurial risk taking, implying that the primary mechanism is insurance provision. Repayment flexibility also attracts less risk-averse borrowers interested in business expansion. At the same time, the effects for the larger loan are much more modest. Our findings suggest that lack of insurance is an important constraint for small firms but that a simple financial product that increases repayment flexibility can be an effective tool for enabling enterprise growth.

The dark side of bank taxes

We investigate the impact of a new bank tax in Poland on bank lending behavior. We find that banks respond to the tax by tightening credit supply and increasing the costs of credit to the real sector. However, the responses vary across loan segments. In line with search-for-yield behavior, the tax motivates banks to shift their allocations of household credit from low-margin and relatively safe mortgage loans to higher-margin and riskier consumer loans. We find no evidence that financially weak banks are more incentivized to shift to riskier loan types. Moreover, firms that receive loans from banks more exposed to the tax experience a greater credit contraction.

Novation as a remedy against abusive clauses of bank credit contracts

The purpose of this article is to research the possibility of the legal institution applying the novation regarding the abusive clauses in the bank credit contracts to save the bank contract in cases where the declaration of the abusive nature of the essential clauses could lead to the total ineffectiveness of the credit contract. Also, through this article, we propose to research whether or not, in relation to the rules applicable to novation, there are impediments to the novation of obligations stemming from abusive clauses, under the conditions in which they are considered null and void and whether there is a possibility that the initiation of steps to achieve the novation may not have a freely consenting character.

Retail Central Bank Digital Currencies: Implications for Banking and Financial Stability

This paper reviews the literature examining how the introduction of a retail CBDC would affect the banking sector and financial stability. A CBDC has the potential to improve welfare by reducing financial frictions, countering market power in deposit markets and enhancing the payment system. However, a CBDC also entails noteworthy risks, including the possibility of bank disintermediation and associated contraction in bank credit, as well as potential adverse effects on financial stability. The recycling of the new CBDC liability through asset purchases or lending by the central bank plays an important role in determining the economic consequences of the introduction of a CBDC. A CBDC also raises important questions regarding the footprint of central banks in the financial system. Ultimately, the effects of a CBDC depend critically on its design features, of which remuneration is the one discussed most often in the literature.

Dampak Kehilangan atau Pencurian barang yang Dibeli dengan Kredit pada Pembayaran Cicilan

This article discusses the legal implications concerning the loss or theft of goods purchased on credit in installment payments. The main focus of this article is to analyze the legal consequences that buyers may face when goods purchased under a credit scheme experience loss or theft. The discussion involves aspects such as buyer responsibility, the role of the seller or financing institution, and legal protections available to the buyer in such situations. The research method employed is legal analysis, detailing provisions of credit contracts, consumer protection regulations, and relevant court decisions. The research findings highlight the importance of understanding the rights and obligations of buyers in the context of the loss or theft of goods purchased on credit. Legal implications on installment payments also take center stage in outlining the potential impacts on the parties involved in such credit agreements..