Credit Demand Research Articles

Growing beyond trade: Export shocks and the spatial expansions of bank branching

AbstractThis paper empirically examines the impact of tariff reductions for exporters on banks' location choices with geo‐referenced information on subsidiaries and branches of China's state‐owned and joint‐stock banks. We construct prefecture‐level tariff barrier changes faced by exporters from 2001 to 2007 and identify the impact by exploiting within‐bank cross‐prefecture changes in bank branching patterns. The empirical results suggest a positive and significant pass‐through from export expansion to banks' geographic expansion. Specifically, a 10% export tariff reduction would induce a 1.88% increase in the local number of bank branches. This result holds under a battery of robustness tests. Mechanism tests suggest that increased credit demand in the corporate sector, both at the intensive and extensive margins, is the main channels that explain the baseline patterns. The findings in this paper offer valuable insights into the relationship between internationalisation and financial development.

Credit Choices in Rural Egypt: A Comparative Study of Formal and Informal Borrowing

Access to finance is essential for fostering financial inclusion, improving household economic well-being, and stimulating economic growth. However, if not prudently managed, it can become a double-edged sword, increasing the risk of over-indebtedness, particularly among low-income households. This paper investigates the borrowing behavior of rural households in Egypt, exploring whether it is motivated by the optimization of intertemporal consumption or reflects deeper financial vulnerabilities. The study enhances our understanding of rural households’ financial behavior in Egypt and contributes to the literature by introducing perceived general self-efficacy as a key behavioral factor. The paper employs a quantitative methodology using a probit analysis of the Egypt Labor Market Panel Survey to explore the factors affecting the demand for formal loans, informal borrowing, and Rotating Saving and Credit Associations (RoSCAs). The results show that informal credit plays a dominant role in meeting rural households’ financial needs. A significant positive relationship between formal and informal credit suggests they are complementary. Elderly, married, less educated, and poorer individuals are more likely to seek both forms of credit, with employment stability being a key differentiator. Self-efficacy also has a significant positive effect. No significant regional differences are observed, except in the case of informal borrowing, with rural households in Upper Egypt showing less reliance, suggesting that social image may influence financial behavior in this region. The results suggest that demand for credit is driven by economic and financial vulnerability of rural households. The paper highlights key policy implications. First, to enhance participation in formal credit market, credit policies should offer more affordable, tailored credit relevant to starting a business rather than financing consumption, part of which is conspicuous. Second, the low self-efficacy among the rural poor suggests a need for policies that combine credit access with financial literacy and debt management support to prevent over-indebtedness.

Credit Supply or Demand? The Changing Role of Structural Market Forces in Bank Lending*

ABSTRACT Recent crises have shown that disruptions in credit markets can have serious macroeconomic consequences. This paper aims to assess the structural drivers of the bank lending market to non-financial corporations using the structural VAR methodology in a small, open, and bank-based euro area economy – Slovakia. The results show that credit demand shocks (loans demanded by firms) are at least as important as credit supply shocks (loans supplied by banks) in the lending market, and that this importance changes over the cycle. These findings have important policy implications, as responding to these shocks may require different policy measures.

External Shocks, Asset Prices, and Credit Dynamics in Morocco: Insights from Disequilibrium Models

We investigate external shocks and asset price’s impact on the slowdown of business and household credit in Morocco using disequilibrium models. The results show that banks’ fly to quality, driven by a simultaneous decline in interest margins and borrower creditworthiness, is a key factor behind the slowdown of credit supply. On the demand side, slower growth and saturated housing demand have contributed to reduced borrowing and repayment capacity of borrowers. Furthermore, external shocks are transmitted to credit supply through foreign deposits and households’ credit demand through remittances. Additionally, stocks and residential real estate asset prices are closely tied to credit demand. These findings suggest that addressing bank credit barriers could stimulate economic growth. To do so, policymakers may consider employing unconventional monetary policy tools to effectively manage the transmission channels of external shocks and asset prices to bank credit dynamics.

Credit Crunch Detection in Indonesia

This research analyzes the credit crunch phenomenon in Indonesia using the Simultaneity method. The data taken is time series data on the demand and supply side of credit. The research results show that the credit crunch phenomenon occurs from the demand and supply sides. The factors of credit demand are Credit Interest Rate (CIR) and Inflation. Meanwhile, from the supply side, namely Credit Interest Rate (CIR), Third Parties Fund (TPF), Net Interest Margin (NIM), and Non-Performing Loans (NPL). The results of research using the Two Stage Least Square approach show that, simultaneously, the variables inflation, CIR, NPL, NIM, TPF have an influence on the demand and supply of credit which triggers a credit crunch during the Covid-19 pandemic.

The relationship between bank lending and economic factors in the regions of Kazakhstan

Understanding the impact of economic factors on bank lending is crucial in Kazakhstan’s modern economy, characterized by volatile inflation and fluctuations in real wages. This paper aims to investigate the link between bank lending and economic factors such as inflation, real wages, and consumer expenditure in a regional context. Data from the Bureau of National Statistics and the National Bank, covering the period from 2012 to 2022, were used to uncover how economic factors influence bank lending. For the analysis, various economic indicators were integrated through normalization and averaging. Analysis reveals significant regional disparities in real wages and consumer expenditures, which impact the demand for bank credit. The results of the correlation matrix showed that both real wages (P-value < 0.001) and inflation (P-value < 0.001) significantly impact bank lending, with an R² value of 0.998, indicating that the model explains 99.8% of the variation in bank lending. The regression analysis highlights that regions with higher real wages, such as Astana, Almaty, and Atyrau, provide the most favorable conditions for banking sector growth, demonstrated by a strong relationship between wages and bank lending. In contrast, regions with lower wage levels, such as Turkestan and Zhambyl, show a significantly weaker connection (around 0.65), reflecting their lower attractiveness for banking investment and emphasizing the need for policies to address social inequality. The Durbin-Watson test confirmed no autocorrelation in residuals (DW = 1.89), although heteroscedasticity was detected, suggesting the need for further model adjustments. The study emphasizes the importance of developing economic policies that can balance regional development and improve financial stability. AcknowledgmentsThis research has been funded by the Science Committee of the Ministry of Science and Higher Education of the Republic of Kazakhstan (Grant “Development of mechanisms for reducing social inequality and improving the welfare of the population of Kazakhstan” AP19174744).

Governance and policy implications of the Inflation Reduction Act: A European perspective

AbstractThis paper examines the US 2022 Inflation Reduction Act (IRA) alongside the EU's Net‐Zero Industry Act (NZIA) and Critical Raw Materials Act (CRMA) of 2023. We analyze their differential approaches to accelerating investment in clean technology, enhancing energy security and fortifying supply chains. Both regions share the objective of diminishing reliance on Chinese dominance in clean industries. The US seeks to stimulate private investment primarily via uncapped tax credits from 2022 to 2031, some of them subject to stringent domestic content requirements. The EU has reacted to the potential violation of World Trade Organization's rules and a possible green investment shift to the US In doing so, the EU is relying heavily on a regulatory strategy, with emphasis on the simplification of procedures. However, the EU's public funding model is vague and leaves details to the discretion of member states, risking fragmentation within the single market. Through the application of a dynamic computable general equilibrium model, we show that a 50% increase in demand for the IRA's uncapped tax credits could nearly triple US GDP outcomes by 2027. We highlight the contrast between the IRA's immediate fiscal incentives and the NZIA's regulatory approach, emphasising that the former are more attractive for firms.

Does cooperative membership facilitate access to credit for women farmers in rural Kenya?

Potential borrowers' demand for credit is restrained by agricultural risk, while microfinance institutions favor male over female farmers because the latter have no collateral. We investigate whether women's membership in cooperatives facilitates access to credit. Primary data from Kenya were used. Descriptive statistics, propensity score matching, and probit regression methods were applied. The results show that 78 % of the respondents did not apply for credit mostly because of high interest rates and being risk-averse; while 60 % of those denied credit were due to lack of collateral. The estimates indicate that joining cooperatives increases the probability of female farmers' access to credit; transparency in cooperatives' financial activities increases the probability of accessing credit by 72 %. Given the core role of cooperatives, there is a need for a favorable environment in which cooperatives can form, develop, and thrive. Cooperatives need support from the government and development agencies to buffer their financial and management capacities and skills training. Subsequently bolstering women farmers' participation in cooperatives.

Student Loans, Access to Credit, and Consumer Credit Demand

Abstract This paper provides novel evidence that increased student loan debts, caused by rising tuitions, increase borrowers’ demand for additional consumer debt, while simultaneously restricting their ability to access it. The net effect of student loan debt on consumer borrowing varies by market, depending on whether the supply or demand channel dominates. In loosely underwritten credit markets, increased student loan debt causes borrowing to increase, while in tightly underwritten markets, increased student loan debt reduces credit use. These findings match predictions of a standard life cycle model of household consumption and borrowing, augmented by a realistic student loan repayment contract. (JEL G51, D15, I22, D14)

Efficient Use of Financial Technology in Consumer Finance Companies

With the rapid advancement of China's economy, the demand for consumer credit has surged, driven by diversified consumption scenarios and product categories. Consumer finance companies, alongside traditional commercial banks, have become pivotal in meeting this demand. The integration of financial technology (fintech) into the consumer finance sector has revolutionized the entire business process, encompassing pre-lending, lending, and post-lending phases. This study explores the application and impact of fintech on consumer finance companies, focusing on customer acquisition, risk management, and operational efficiency. Additionally, the study addresses the emerging risks associated with fintech, such as technological black boxes and algorithmic biases, which pose new challenges for risk management. By analyzing the fintech-enabled business processes and risk control mechanisms, this paper provides insights into optimizing fintech applications to enhance efficiency and mitigate risks in consumer finance companies.

Financializing the Central Highlands: Indebtedness in Everyday Life of the K’ho-Chil Ethnic Communities

Ethnic communities in Vietnam’s Central Highlands as the K’ho-Chil in reality are highly integrated into the economic mainstream. Yet, without preparedness for the bad side of the market mechanism, they are falling into the vicious cycle of debt and poverty. Evidence reveals that indebtedness has shaped everyday life and the financialization process is increasing. From the household lens, the State policies create supportive environments for credit demands while cultural assimilation makes indebtedness emotive and acceptable. Cash crops generate limited incomes while the increase of household consumption has widened the earning-spending gaps. Debts are employed to fill in such gaps but in the long-run have led to the vicious cycle of impoverishment. Better policies need to broaden opportunities for the minority to escape the monopoly of commercial crops while aid packages should redesign to target indebted problems.

The demand for agricultural credit in central Chile

PurposeThe design of effective policies that increase access to agricultural credit should consider understanding credit constraint farmers’ groups and their response to changes in the credit conditions. To contribute to this understanding, this study surveyed farmers from Chile and classified them into five credit constraint categories discussed in credit literature. In addition, these farmers indicated how they would react to a series of hypothetical conditions related to changing interest rates, loan maturity and grace periods. Their responses were employed to measure credit demand scores (i.e. relative elasticities). Regression tests evaluated how different types of farmers reacted to changing credit conditions.Design/methodology/approachFarmers from Chile were surveyed using a mix of random and convenience sampling. Surveyed farmers were classified into five credit constraint categories proposed by previous research. Farmers rated their demand for credit on a five-point Likert-type scale for hypothetical changes in interest rates, loan maturities and grace periods. Their responses were employed to measure credit demand scores or relative credit elasticities. The study evaluated credit elasticity as a function of farmers’ credit constraint and some control variables using several regressions, including OLS, ordered probit and hierarchical regression.FindingsThe study identified 44% unconstrained nonborrowing farmers, 23% unconstrained borrowers, 14% quantity-constrained, 16% risk-constrained and 3% transaction cost-constrained farmers. Unconstrained borrowers and quantity-constrained farmers responded most to changing interest rates and loan maturity conditions. In addition, unconstrained nonborrowers and risk-constrained farmers were statistically less sensitive to changes in credit conditions than unconstrained borrowers. This finding is significant because, as discussed, unconstrained nonborrowers represent 44% of our sample. Furthermore, risk-constrained farmers were the least sensitive to changes in interest rates and loan maturity across all other credit categories.Practical implicationsThis study gives insights that can guide agribusiness policies to enhance access to credit in developing countries such as Chile. Agricultural credit capital institutions can better target their clientele by identifying farmers’ possible reactions before implementing policy changes to increase access to credit. This study’s credit constraint categorization and the results discussed can guide that identification. For instance, policies directed toward unconstrained borrowing farmers may find positive responses. However, implementing policies targeting the other three groups (unconstrained nonborrowing, risk-constrained and transaction cost-constrained farmers) is more challenging because these farmers are less responsive to changing credit conditions.Originality/valueThis article correlates farmers’ propensity to borrow and credit constraints across five categories of farmers. Prior research using this categorization framework has not identified farmers into the five groups. Furthermore, in addition to interest rate and loan maturity credit demand relative elasticity, this study adds the grace period elasticity, which has not been included in previous studies on agricultural credit.

A two-stage sustainable production-inventory model with carbon credit demand

A two-stage sustainable production-inventory model with carbon credit demand

FinTech lenders on the consumer finance market in Central and Eastern Europe

The authors analyze the consumer finance markets in the countries of Central and Eastern Europe against the background of the markets of the EU countries and the Euro area, with particular emphasis on non-bank lending institutions that use financial technologies to grant loans to consumers. As research shows, these loans are more expensive than traditional consumer bank loans, but more accessible, more flexible and tailored to the needs of customers from different generations. Black swans – sudden, unpredictable events – do not, in principle, change the demand for consumer credit but merely slow the growth dynamics of the market, which returns to its pre-disruption level after some time.

A bankszabályozás lehetőségei és korlátai az endogén pénzelmélet keretében

The article questions whether the current system of bank regulation can guarantee that banks are subject to a hard budget constraint. We use the framework of post-­Keynesian endogenous money theory. Banks deposit loans in companies’ bank accounts, and no external source is needed for the transaction, so banks can in principle create an unlimited amount of money if there is a demand for credit. However, banks’ ability to create money is limited by a number of factors. Using János Kornai’s concept of a soft budget constraint we analyze the factors that cause inherently soft budget constraints for banks. We point out that neither monetary policy, nor the profit goals of banks, nor the banks’ internal risk management practices would guarantee that banks face a hard budget constraint. This must be imposed on them by an external factor, the banking regulation. However, the current system of banking regulation is not well suited to do this, so the soft budget constraint is inherent to banking. This contributes to the fact that banking crises are natural part of the financial system.

Adoption of digital payment platforms and trade credit activities among informal firms in Ghana

This study investigates the relationship between the utilisation of digital payment platforms and the decision of informal firms to engage in the demand for or supply of trade credit. Recognizing the pivotal role of trade credit in alleviating financial constraints for informal enterprises, our research employs a recursive bivariate probit model to assess the impact of digital payment platform usage on both the demand for and supply of trade credit among informal firms in Ghana. Leveraging data from the World Bank Enterprise Survey, we find that 13.83 % of informal firms receive trade credit from suppliers, while 26.89 % extend trade credit to customers. Additionally, 49.6 % of firms use digital payment platforms for their business transactions. The study finds that digital payment platforms increase the probability of firms engaging in the demand and supply of trade credit. It argues that digital payments enhance transaction efficiency, convenience, and security, potentially reducing associated transaction costs and facilitating business interactions across distant locations. Various factors, including firm age, maintenance of accounting records, sales volume, owner experience, credit facilities, internet use for social media marketing, and operating hours, significantly influence the decision to engage in trade credit activities. The robustness of our results is confirmed through alternative estimation techniques. Recommendations include policy interventions aimed at promoting the digitalization of informal firms, supported by government investments in digital infrastructure. It is recommended that firms and their suppliers and customers should adopt these digital payment platforms in order to facilitate their use of trade credit in business transactions. A regulatory environment fostering business trust and responsible use of digital payment platforms is crucial, necessitating measures to ensure data protection, security, and ethical conduct within the digital payments’ ecosystem.

Influencing Factors of Financing Constraints of Micro and Small Enterprises (MSEs) in China: A Risk Information Conveyance Perspective

Given the phenomenon of “financing is difficult and expensive” for MSEs, this paper empirically investigated the influencing mechanism of the credit demand side characteristics on the financing constraints of MSEs based on the information conveyance perspective. The conclusions show that MSEs in China are severely suffering from financing constraints and 57.17% and 50.00% of MSEs with credit demand have not applied for loans from formal and informal financing channels, respectively. In terms of enterprise characteristics, MSEs have low asset size, short establishment history, weak profitability, and lack of tools such as fixed assets, complete financial management system, professional technicians, and private brands to convey risk information to financing institutions, which are key factors resulting in their financing constraints. In terms of owner characteristics, young owners lack financing experience and convey higher risk information to financing institutions; therefore, owners’ age negatively influences the financing constraints of MSEs. These findings suggest that banks can use big data credit technology as a tool to obtain risk information about MSEs, and the government should implement diversified interventions to improve the information environment in financial markets. These findings provide empirical evidence for banks and governments to address the financing constraints of MSEs.

Consumer participation in the credit market during the COVID-19 pandemic and beyond

Abstract This article analyses the consumer’s decision to apply for credit and the probability of the credit being accepted in the euro area during a period characterized by the unprecedented concomitance of events and changing borrowing conditions linked to the global coronavirus disease 2019 (COVID-19) pandemic and the Russian invasion of Ukraine. We use data between 2020Q1 and 2023Q2 from the ECB’s Consumer Expectations Survey. We find that credit demand is the highest when the first lockdown ends and it drops when supportive monetary compensation schemes are implemented. There is evidence that constrained households are significantly less likely to apply for credit. Credit is more likely to be accepted under favourable borrowing conditions and after the approval of national recovery plans. We also find that demographic, economic factors, perceptions, and expectations are associated with the demand for credit and the credit grant.

Which Provinces Will Be the Beneficiaries of Forestry Carbon Sink Trade? A Study on the Carbon Intensity–Carbon Sink Assessment Model in China

Carbon emissions pose a significant challenge to sustainable development, particularly for China, which is the world’s largest emerging economy and is under pressure to achieve carbon neutrality and reduce emissions amid escalating human activities. The variation in economic development levels and carbon sequestration capacities among its provinces poses a significant hurdle. However, previous research has not adequately examined this dual discrepancy from the perspective of spatial heterogeneity, resulting in a lack of differentiated management of forest carbon sinks across diverse regions. Therefore, to mitigate this discrepancy, this study presents an assessment methodology that analyzes over 100 types of natural and plantation forests using forest age and biomass expansion factors. This study presents a model that can significantly support the efforts of both China and the whole world to achieve carbon neutrality through the improved management of forest carbon sinks. This approach facilitates the assessment of carbon offsets required to meet reduction targets, the development of a provincial framework for carbon intensity and sequestration, and the exploration of their potential for trading markets. Analysis is conducted using MATLAB. Key achievements of this study include the following: (1) The collection of a comprehensive carbon stock dataset for 50 natural and 57 plantation forest types in 31 provinces from 2009 to 2018, highlighting the significant role of new forests in carbon sequestration. (2) The development of a provincial carbon status scoring system that categorizes provinces as carbon-negative, carbon-balancing, or carbon-positive based on local forest sink data and carbon credit demand. (3) The formulation of the carbon intensity–carbon sink assessment (CISA) model, which suggests that provinces with middle- to upper-middle-level economies may have a prolonged need for carbon sink credits during their peak carbon phase. Furthermore, the results show that carbon trading may benefit Guangxi and Yunnan, but may also bring opportunities and risks to Hunan and Hubei. To address regional imbalances, this study advocates tailored policies: carbon-negative and carbon-balancing provinces should enhance carbon sink management, while carbon-positive provinces must focus on energy structure transformation to achieve sustainable development goals.

Blood Money: Selling Plasma to Avoid High-Interest Loans

Abstract Little is known about the motivations and outcomes of sellers in remunerated markets for human materials. We exploit dramatic growth in the U.S. blood plasma industry to shed light on the sellers of plasma. Sellers tend to be young and liquidity-constrained with low incomes and limited access to traditional credit. Plasma centers absorb demand for nontraditional credit. After a plasma center opens nearby, demand for payday loans falls by over 13% among young borrowers. Meanwhile, foot traffic increases by over 4% at nearby stores, suggesting that constrained households use plasma markets to smooth consumption without appealing to high-cost debt.