Credit Demand Research Articles

The impact of corruption on SMEs’ access to finance: Evidence using firm-level survey data from developing countries

The present paper estimates the impact of bureaucratic corruption on access to finance for small and medium enterprises (SMEs) in the manufacturing sectors of 79 developing countries. Corruption can make it difficult for businesses to obtain financing by reducing profits, increasing credit demand, increasing the likelihood of bankruptcy, creating uncertainty about future profits, and exacerbating the asymmetric information problem between borrowers and lenders. Consistent with this viewpoint, our findings show that corruption significantly increases the likelihood of a manufacturing SME being financially constrained. A one standard deviation increase in the prevalence of corruption leads to a 3.5–4.9% point increase in the likelihood or probability of a manufacturing SME being financially constrained. In countries with credit bureaus and more freely functioning credit markets, the increase in the likelihood of being financially constrained due to higher corruption is much smaller. We argue and provide evidence that these heterogeneities stem from the specific ways in which corruption affects SMEs’ access to finance. Thus, the heterogeneities help to raise confidence against the omitted variable bias and reverse causality concerns with our estimation. We also find that higher corruption makes it more difficult for SMEs to access finance in more competitive product markets, as well as for small compared to medium-sized firms. The findings have important policy implications for anti-corruption initiatives, financial development, and the level of competition in product markets.

Determinants of household credit behavior of low-income households in Sri Lanka

The paper aims to achieve three objectives in relation to household borrowing behavior among low-income households in Sri Lanka. First, it attempts to understand the patterns of savings and credit behavior of households. Second, it identifies the underlying reasons for the credit demand of households. Third, it investigates the relative significance of demographic and other socioeconomic factors that influence the reasons for households’ credit demand. Primary data collected from 1,500 household units were utilized for the analysis. Thematic and multinominal logistic regression analyses were used to achieve objectives. The thematic analysis identified 533 household units in debt and has revealed eight reasons behind households’ borrowing decisions, with borrowing for housing renovations, investing and consumption being the top three reasons. The results of the multinominal regression analysis revealed that having children is the most influential demographic factor that lies behind most reasons. The paper concludes that only a few households have borrowing habits, and their borrowing purposes vary. Most are not used for productive investments, and having young dependents induces household borrowing decisions. Based on the outcome, the study suggests strengthening social assistance for households with young dependents to protect low-income families from indebtedness.

Uncertainty, credit and investment: Evidence from firm-bank matched data

This paper studies how high uncertainty affects corporate bank loans, addressing the important issue of identification. In times of high uncertainty, firms reduce their credit demand due to delayed investments or a deterioration in credit worthiness. Simultaneously, banks are more exposed to negative shocks to their balance sheet, reducing credit supply. To isolate the uncertainty effect from the credit supply effect, we employ matched bank-firm loan data covering all loans extended by all financial intermediaries to listed firms in Korea, a bank-centered economy. Our empirical results reveal that a failure to control for credit supply leads to overestimating the effect of uncertainty on bank loans. In terms of the transmission channel of uncertainty, we find the evidence of both the real option channel and the financial channel: the negative effect is stronger for firms with a higher degree of investment irreversibility and financially constrained firms. In addition, our findings suggest that larger firms may be predominantly affected by uncertainty shocks through the real option channel rather than the financial channel. In addition, our empirical findings on firm investments align with those on bank loans.

The impact of consumer credit on the stability of the banking system: analysis of economic and psychological factors

The purpose of the research is to determine the impact of consumer lending on bank sustainability and to assess its dependence on economic indicators.Methodology. The research methodology is based on qualitative and quantitative approaches. The methods of regression analysis, transformation of analytical data mapping, analysis and synthesis were used in the article.Originality / value of the research lies in the fact that the authors have determined the dependence of consumer lending on both macroeconomic and psychological factors on the basis of calculations.Findings. The authors, through econometric calculations, obtained the consumer function as the main indicator of aggregate demand, which affects economic growth. They revealed a low dependence of consumer credit on: interest rate, average monthly income of the population and inflation. The result of multiple regression showed that macroeconomic factors explained only 43,3 % of consumer credit growth. Along with this, the authors identified a significant impact of consumer credit on imports and gross value added of trade.Based on qualitative analysis, the authors calculated the Consumer Sentiment Index (CCI), based on a survey of 128 respondents. The survey found that consumers are optimistic and highly susceptible to psychological instruments of influence, such as marketing and promotions. Also, the authors believe that the perception of debt burden and credit availability influenced the dramatic growth of this banking product.Arguing their assumptions by citing contemporary research by economists, the authors determined that changes in demand for consumer credit are determined more by psychological factors than economic ones. The increase in household final expenditures was due to an increase in consumer credit, which stimulated aggregate demand in the short run and thereby influenced economic growth. At the same time, in recent years in Kazakhstan, lending to households has outpaced lending to industries and the ratio of household debt to GDP has been increasing. This trend may lead in the long run to bank defaults and economic recession in the country. Based on this, the authors have proposed some recommendations to address these problems.

Business Group Spillovers

Abstract We compare the investment of standalone firms across regions after a positive shock to the investment opportunities generated by a large-scale highway development project. We show that the standalones’ investment sensitivity is lower in regions with a higher density of business groups in the local area. We investigate mechanisms driving our results and find support for a financing mechanism whereby banks allocate capital preferentially to group-affiliated firms in responding to the increase in credit demand. Overall, our study documents that business groups have spillover effects on standalone firms. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online

Monetary policy transmission in India under the base rate and MCLR regimes: a comparative study

The paper estimates the degree of pass-through of monetary policy to bank lending rates under both the base rate and the marginal cost of funds-based lending rate (MCLR) regimes using dynamic panel data regression. Using nine different models for nine individual bank-specific variables, the study estimates that a 100 basis point increase in the policy rate leads to an increase in the weighted average lending rate on fresh rupee loans sanctioned by banks over the long run by 26–47 basis point-depending on the model specification- during the MCLR regime as against 11–19 basis point during the base rate regime. Hence, irrespective of the model chosen, transmission is higher during the MCLR regime than base rate regime. The alignment of liquidity management with the monetary policy stance, the introduction of the flexible inflation targeting (FIT) framework and the deceleration in economic activity reducing credit demand could be contributory factors for better transmission during the MCLR regime.

Preferences and adoption of improved cookstove from results-based financing program in Southeastern Ethiopia

Environment-friendly energy practices are essential for a sustainable and quality environment in most developing countries, like Ethiopia. To achieve this, results-based financing (RBF) was implemented to distribute improved cookstove with a demand and supply side management system. However, the success of RBF is not evaluated regarding households’ preferences and adoption of the stove. This study was conducted to evaluate households’ preference and adoption of improved Tikikil stove in the RBF implementation areas. Data were collected from 191 households using a household survey and 10 focus group discussions. The data were analyzed using descriptive statistics and a binary logit regression model using STATA 16 software. The result revealed that the cost of stove, stove holding, construction material, cooking time reduction, and smoke reduction were the top five attributes ranked by user households. The dissatisfied households have complained about durability, wood inlet size, stove cost, and suitability of pot size. Results also indicated that the success of RBF program showed moderately effective. The regression result revealed that education, family size, landholding size, livestock holding, fuel expenditure, awareness, and separate kitchen were significantly and positively associated while distance to nearest town is significantly and negatively related to the adoption of Tikikil stove. The findings suggest that households need Tikikil stove options to reduce the negative effect of traditional stoves but currently available stoves lack to address the preferences of the households. In addition, different socio-economic characteristics of households and stove attributes are important factors that need to consider for the wider adoption of ICS to meet the current demand of carbon credit by reducing emissions from traditional stove.

Credit Debt and Over-indebtedness Among the Agrarian Community: A Case Study in Krishnagar-I C.D. Block of Nadia District, West Bengal

This article examines the different aspects and the persistence of credit debt and over-indebtedness among the 227 rural agrarian households of seven representative villages in Krishnagar-ICD Block of Nadia district, West Bengal in India. This study employed three multiple regression models, one binary logistic regression model, percentage and frequency count to analyse the data. Overall, 41.41% of the total farmers faced an over-indebted burden. The majority of the borrowers are sub-marginal farmers (59.47%), availed their major proportion of credit (63.17%) from different non-institutional agencies and utilized their major proportion loan (69.37%) for several unproductive purposes. Over-indebtedness is strongly related to the farmer from a lower age group and experiencing the adverse shock of death from any family member. It is found higher among the more experienced farmer and the farmer having more percentage of cash crop and with the increase of overdue amount and credit demand per acre. On the other hand, it is found lower with the rise of per acre cost for production. To reduce the uncertain shock of the over-indebtedness burden, credit literacy, land productivity and non-agricultural income source should be increased, complicated procedural formalities of formal credit for the sub-marginal farmer and landless sharecropper should be minimized.

Implication of Microenterprises’ and Entrepreneurs’ Characteristics on Microfinance Credit Demand in Kakamega County, Kenya

Implication of Microenterprises’ and Entrepreneurs’ Characteristics on Microfinance Credit Demand in Kakamega County, Kenya

Analysis of factors affecting demand for safe and quick loans at PT Pegadaian (Persero) main office in Medan City

The purpose of this research is to determine whether or not Fast Secured Credit (KCA) demand is affected by customers’ income, the number of dependents they support, and their level of education. One hundred people were selected at random and through convenience sampling for this study. A quantitave approach was taken for this study. The test result show that the income variable, dependents, and education level have a positive and significant effect on demand for credit. It is recommended that if the customer’s income increases, the community should save money, if one day there is an urgent need it can be resolved.

Specialization in Bank Lending: Evidence from Exporting Firms

ABSTRACTWe develop a novel approach for measuring bank specialization using granular data on borrower activities and apply it to Peruvian exporters and their banks. We find that borrowers seek credit from banks that specialize in their export destinations, both when expanding exports and when exporting to new countries. Firms experiencing country‐specific export demand shocks adjust borrowing disproportionately from specialized banks. Specialized bank credit supply shocks affect exports disproportionately to countries of specialization. Our results demonstrate that firm credit demand is bank‐ and activity‐specific, which reduces banking competition and affects the transmission and amplification of shocks through the banking sector.

THE EFFECT OF INTEREST RATES ON THE DEMAND FOR MULTIPURPOSE LOAN (KSG) AT PT. BANK PERKREDITAN RAKYAT HASAMITRA DAYA MAKASSAR CITY BRANCH

Banks play a crucial role as financial institutions by collecting and distributing public funds to support national development. Conventional banks primarily generate income through interest charged on loans provided to borrowers. This study aimed to investigate the impact of interest rates on the demand for multipurpose loan (KSG) at PT. Bank Perkreditan Rakyat Hasamitra Daya, Makassar City Branch. The variables considered in this study are interest rates and the demand for multipurpose loans. The population for this study consists of all interest rate data and credit request reports for multipurpose loans at PT. Bank Perkreditan Rakyat Hasamitra Daya, Makassar City Branch. The sample includes interest rate data and credit request reports for multipurpose loan at PT Bank Perkreditan Rakyat Hasamitra Daya, Makassar City Branch, from 2015 to 2022, covering each quarter. The data collection techniques employed in this study are documentation and interviews. The analysis used to determine the relationship between the independent variables and the dependent variable includes simple linear regression, classical assumption tests, and hypothesis testing. The results of the regression equation for the impact of interest rates on the demand for multipurpose loans are as follows: Y = 17,337,852 - 75,073 X. Based on these findings, interest rates do not exhibit a significant effect on the demand for multipurpose loans. The influence of interest rates on the demand for multi-purpose credit at PT. Bank Perkreditan Rakyat Hasamitra Daya, Makassar City Branch, accounts for 38.4%. The remaining 61.6% is influenced by other factors not examined in this study.

Disentangling demand and supply side determinants of post-GFC credit slowdown: an Indian perspective.

In an emerging market economy (EME) that depends largely on bank-credit, it is important to decipher whether supply-side or demand-side factors are responsible for a sluggish credit growth phase. A formal empirical analysis using Indian data and a disequilibrium model suggests that demand side factors have majorly contributed to the credit slowdown during the post-GFC period and prior to the pandemic. This could be because of adequate supply of funds, and several concerted policy actions taken by the regulatory authorities to mitigate concerns over the asset quality risks. In contrast, lower investment demand and global supply side bottlenecks have often contributed to demand side weaknesses, suggesting the need for strong policy support to uphold credit demand.

Modeling key enablers influencing FinTechs offering SME credit services: A multi-stakeholder perspective.

The study models inter-relationship among key enablers that influence the growth of FinTechs that offer credit services to small and medium enterprises (SMEs). It focuses on emerging market of India, which is the world's third-largest FinTech centre. It employs Grey DEMATEL method to measure the cause-effect relationship based on the assessment given by FinTech practitioners, experts, policymakers, and investors. The results show that credit demand by SME borrowers, availability of alternate data sources, and Covid-19 are the critical enablers that exercise strong impact on FinTech system. Collaboration between FinTechs and traditional financial institutions, end-to-end financial solutions, and scalability of business operations are recognized as critical dependents that are hugely affected by others. The study recommends policymakers to foster collaborative environment, strengthen digital data landscape, and improve financial literacy to develop FinTech sector. It recommends practitioners to focus on data security and to offer end-to-end financial solutions to its SME borrowers.

Potential demand for microloans: A household-level study

ABSTRACT Having an inclusive financial system is an important tool for economic and social development. Given the lack of depth of financial markets in emerging economies, microfinance represents a paradigm shift. It involves incorporating instruments into the financial management of households that can lead to a genuine reduction in vulnerability by generating greater access to durable consumer goods or housing. For this reason, this article analyzed the characteristics of households excluded from formal financial services in the city of Bahía Blanca, Argentina, in 2021. Once identified, they were used to calculate the potential demand for microcredits (MCs). This allows measuring the importance of having an alternative to meet the unsatisfied demand for small-scale credit of the population excluded from the formal financial market. Comparing the unsatisfied needs with the actual supply of MCs, the results obtained show a considerable scope for developing MC institutions in the city (but also in Argentina).

Analysis of Banking Performance and Risk in Indonesia during the Covid-19 Pandemic

The banking sector has experienced a decline in demand for credit and a lack of disbursement, which has had an impact on the income of bank credit borrowers. Knowing the financial performance of banks during the Covid-19 pandemic can provide a good explanation of the problems faced by the banking sector. The analysis used in this study was a comparative comparison of two observations using a paired sample T-test. The variables used in this study are ROA, ROE, BOPO, LDR, CAR and NPL. This research found that the Covid-19 pandemic affected the decline in bank performance in general. This can be seen in the values of ROA, ROE, RORA, NPM, LDR, and NIM which have decreased in value before and after the pandemic. This research also found that the COVID-19 pandemic increased bank risk during the pandemic. This can be seen in the BOPO and KPMM variables which have increased from before and after the pandemic.

Research on the practice of innovation and entrepreneurship education in universities under the environment of big data

Abstract Entrepreneurship education is an educational concept and teaching mode which is formed in socio-economic development. Universal entrepreneurship education has both the long-term value of realizing the transformation and upgrading of industrial structure and the practical value of alleviating the employment problem of college students. Therefore, how establishing the innovation and entrepreneurship education model in higher education under the environment of big data analysis is a major issue at present and also a key element to achieving the construction goal of modern higher education. In this paper, the entrepreneurship data of colleges and universities are deeply mined by association rules of the Apriori algorithm and clustering analysis of the FCM algorithm. As a result, an entrepreneurship education model is established and practiced in university classrooms. According to the results of the survey after the practice of the entrepreneurship education model, it can be seen that the number of students’ participation in innovation and entrepreneurship lectures has increased, and the proportion reached 50%. Innovation and entrepreneurship clubs formed on campus and discipline competitions accounted for 16.00% and 18.00%, respectively. College students’ motivations for learning innovation and entrepreneurship education courses are mainly ability enhancement, interest-driven, credit demand, future planning, and influence of others, and they account for 34.00%, 26.00%, 21.00%, 14.00%, and 5.00%, in that order. These indicate that the current group of college students considers the pursuit of knowledge and the improvement of their abilities as the main reasons for undertaking entrepreneurial learning activities. After practicing the entrepreneurship education model, people have increased their knowledge of entrepreneurship theory and are more willing to participate in various entrepreneurial activities.

Green management, access to credit, and firms' vulnerability to the COVID-19 crisis.

The online version contains supplementary material available at 10.1007/s11187-023-00759-1.

House Price Dynamics, Optimal LTV Limits and the Liquidity Trap

Abstract This paper studies the optimal design of a macro-prudential instrument, a loan-to-value (LTV) limit, and its implications for monetary policy in a model with nominal rigidities and financial frictions. The analysis accounts for both an effective lower bound on the nominal interest rate and an upper bound on the ability of LTV limits to stimulate credit demand. The welfare-based loss function features a role for macro-prudential policy to enhance risk-sharing. Optimal LTV limits are strongly countercyclical. In a house price boom-bust episode, the active use of LTV limits alleviates debt-deleveraging dynamics and prevents the economy from falling into a liquidity trap.

Heterogeneous expectations, forecast accuracy and firms’ credit demand

Firm heterogeneity in formulating expectations constitutes a source of friction for the credit market. An expected improvement of credit conditions in the future may slacken current credit demand. Using a panel of European firms in the period 2010–2019, I find that better expectations on future (six-month) access to credit reduce the probability of a firm to apply for bank loans by 3 percent. Results also suggest that access to credit expectations are adaptive. Although firms fail 43 percent of their access to credit forecasts, they adjust their expectations learning from previous forecast errors.