Credit Supply Research Articles

Privacy Preferences of Consumer and Lender: A Case of Digital Credit Systems in India

Digital credit services are rapidly evolving in the Internet commerce environment. As such, this study aims to identify and prioritize the key factors influencing the views of digital credit users (DCU) and digital credit providers (DCP) on privacy practices. The study begins with a comprehensive literature review to identify an extensive set of factors and inputs from an expert panel. Next, the study applies the well-established “multi-criteria decision-making method,” which allows assigning weights to each of the four criteria and 13 sub-criterions to reveal DCU and DCP preferences for digital credit protection. Results indicated that the “Concerns about Personal Information” criteria are prioritized highly by DCU and DCP. This study marks the first attempt to reveal the preferences of DCU and DCP digital data privacy policies in a growing economy (India) and help policymakers and regulators align their digital privacy policies, enhancing the overall user experience.

BANKING AND BANKING REFORMS IN CHINA IN A MODEL OF COSTLY STATE VERIFICATION

AbstractWe present a macro view of China's financial system where a monopolistic banking sector coexists endogenously with bonds and private loans. In equilibrium smaller firms raise finance from private lending, larger firms through bank loans, and the largest by issuing bonds. The model predicts that expanding credit supply increases bank loans but reduces bond finance and private lending, in absolute terms and relative to total credit. In addition, removing the interest rate ceiling on bank lending—a recent reform in China—induces larger loans and higher lending rates, lowering the share of bank loans in total credit. Empirical evidence is presented to support these predictions.

Merchants of Death: The Effect of Credit Supply Shocks on Hospital Outcomes

This study examines the link between credit supply and hospital health outcomes. We use bank stress tests as exogenous shocks to credit access for hospitals that have lending relationships with tested banks. We find that affected hospitals shift their operations to increase resource utilization following a negative credit shock but reduce the quality of their care to patients across a variety of measures, including a significant increase in risk-adjusted readmission and mortality rates. The results indicate that access to credit can affect the quality of health care hospitals deliver, pointing to important spillover effects of credit market frictions on health outcomes. (JEL G21, G32, I11, I18)

Exploring the role of trade credit in facilitating low-carbon development: Insights from Chinese enterprises

As the world's largest emitter of carbon, China is proactively addressing climate change in a responsible manner. The country has set an ambitious goal of achieving the most significant reduction in carbon emission intensity globally within approximately 30 years. In light of the transition to a new low-carbon environment, it is imperative that Chinese enterprises assume a more proactive role in embracing carbon neutrality as a social responsibility. The question of how to supplement the green transformation funds that have not yet been covered by green finance has become a significant issue for Chinese enterprises seeking to achieve sustainable development and promote high-quality development. This study employs hand-collected data on companies' carbon emissions from 2018 to 2023, using the fixed effects model to conduct a comprehensive investigation of the role of trade credit embedded within the supply chain in driving the green evolution of Chinese companies and reducing their carbon dioxide emissions. The findings demonstrate that trade credit has a significant impact on reducing CO2 emissions for Chinese businesses while also enhancing their commitment to adopting greener practices, their capacity for investing in green transformation, and the quality of their green outputs. The results of the heterogeneity analysis indicate that the acquisition of trade credit exerts a more pronounced suppressive influence on carbon emissions for heavy-polluting enterprises, non-state-owned enterprises, low-supplier concentration enterprises, and maturity stage enterprises. Similarly, the supply of trade credit notably curtails the carbon emissions for non-heavy polluting enterprises, non-state-owned enterprises, low-medium customer concentration enterprises, and maturity stage enterprises. The empirical findings of this study contribute to reconciling the substantial dilemma between corporate goals for energy conservation, emissions reduction, and production growth. This research offers key insights to support businesses in achieving a gentle transition towards energy efficiency and reduced carbon footprint in line with the overarching trend of sustainable and low-carbon development.

Do Information Processing Costs Matter to Regulators? Evidence from U.S. Mortgage Companies’ Supervision

ABSTRACT We examine the impact of reducing information processing costs on U.S. state regulators who supervise mortgage companies. State regulators traditionally disclosed enforcement actions only on their individual websites. A centralized repository, introduced in 2012, assembled enforcement records across states in one place, reducing a regulator’s cost to learn about enforcements in other states. Using a difference-in-differences design, we find that enforcement records posted on the centralized repository significantly increase the probability of subsequent enforcement actions against the same firm in other states. This suggests that reducing information processing costs helps state regulators identify companies engaging in misconduct. This effect is stronger for records from state websites where information is harder to process and for state regulators with more limited resources. Last, we observe that sanctioned lenders reduce the credit supply in other states after their enforcement records in one state are posted on the centralized repository. JEL Classifications: G21; G18; K2; M4.

Impacts of multivalued interventions on maize farmers’ welfare: Evidence from SIPMA development project in Ghana

Recent research has highlighted the significance of agricultural development programmes in Sub-Saharan Africa for enhancing production, food security, and farmer welfare. However, these studies frequently investigate the effects of a single intervention rather than a combination of interventions. This study examines the impact of three interventions (credit access, structured market, and entrepreneurial training) on maize yield, food security, food expenditure and non-food expenditure in Ghana. We utilized multivalued inverse probability weighted regression correction, and propensity score matching with data from the Smallholder Inclusive Productivity and Market Access (SIPMA) agricultural development programme on 477 maize farmers. Participation in SIPMA interventions significantly increased maize yields, farm income, food spending, and non-food spending. For smallholder farmers, participation in a combination of input credit provision, structured market, and entrepreneurial training results in the highest yield, farm income, and non-food expenditures, while participation in entrepreneurial training alone results in a lower yield. Our empirical evidence suggests that the interventions should be expanded to other communities because the project's characteristics are distinctive in terms of fostering community engagement and collaboration with local/regional institutions.

How Banks are Impacted by and Mediate the Economic Consequences of Natural Disasters and Climate Shocks: A Review

AbstractNatural hazard shocks (such as natural disasters, extreme weather events, and climate shocks) have significant negative consequences for real economic activity. The banking sector can mitigate (or exacerbate) some of these consequences. This paper reviews the recent empirical literature on how banks are affected by such shocks, and how banks mediate the economic consequences to households and the real economy. After conceptualizing the theoretical transmission channels between the real economy and the banking sector, the review proceeds in two steps. First, it synthesises the existing literature on the direct effects of natural hazard shocks on bank stability, bank profitability, and credit supply. Then, the critical role of banking in economic recovery is analysed, including research on spillovers into unaffected regions through the banking system. Negative direct effects of natural hazard shocks on banks can be significant but are often transitory. Banking systems in less developed countries appear more vulnerable and are less able to maintain credit supply under adverse conditions. Banks that are better capitalised and that have incentives to support affected economies contribute to economic resilience. The review identifies several avenues for future research and highlights specific features and trade-offs relevant to policymakers interested in enabling the banking system to contribute to sustained economic development in the face of worsening physical climate risks.

The impact of financial literacy on SMEs lending conditions

This study investigates the influence of entrepreneurs' financial literacy on the banking-lending terms extended to small and medium-sized enterprises (SMEs). We employed structured interviews with account managers from the second-largest bank in Brazil. The findings demonstrate that financial literacy positively impacts SME bank lending terms across three dimensions: knowledge, behavior, and attitudes. Entrepreneurs with higher levels of financial knowledge are more adept at negotiating favorable credit terms, thereby reducing administrative costs. Financial attitudes serve as a signal to banks of entrepreneurs' confidence and professional management capabilities. Additionally, heightened financial behavior enables entrepreneurs to advocate for more sophisticated financial products. Results achieved are further evidence of the positive impact that financial literacy can bring to SMEs by providing a basis for making sound financial decisions. This research provides valuable insights into how assessing lending practices through the lens of financial literacy can inform policy design, aiming to transform regions with low economic development by leveraging credit as a tool for poverty alleviation. The research aimed to analyze the influence of financial literacy on the lending conditions of SMEs from the perspective of financial institution agents involved in credit provision.

From Field to Market: The Challenges Faced by Onion Growers in Chitradurga, Karnataka, India

Horticultural crops are integral to the Indian economy, serving as a major source of employment, and supplying vital raw materials to the food processing sector. Their cultivation leads to enhanced farm profitability, driven by increased yields and improved market opportunities. Moreover, the export of horticultural produce significantly contributes to foreign exchange earnings, further strengthening India's economic framework. Onion grows extensively across the nation in a variety of climates. India is the world's second-largest producer of onions. It ranks first in terms of acreage, third in terms of exports, and contributes roughly 22.83% to global production. The present study was conducted in 2023 in the Chitradurga district of Karnataka, aimed to identify the challenges faced by onion growers and gather their recommendations for addressing these issues. A total of 120 farmers were selected for the study, comprising sixty small and sixty big farmers. Utilizing an ex post facto research design, data were collected through a pre-tested, structured interview method. The findings highlighted several key constraints in onion cultivation, including limited awareness of nutrient management, price fluctuations in the market, and inadequate access to credit. The majority of farmers recommended the implementation of a minimum support price for onions and timely provision of credit at low-interest rate to mitigate these challenges.

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.

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.

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.

EXTRACTING PRICE SIGNALS FROM THE TERM STRUCTURE OF COMMODITY AND CREDIT MARKETS USING AUSTRIAN BUSINESS CYCLE THEORY

Austrian School economists first explained the significance of interest rates for the structure of production in time. Furthermore, they showed how manipulating the level of interest and the credit supply causes the business cycle (v.Böhm-Bawerk, 1891; v.Hayek, 1938; v.Hayek, 1941 and v.Mises, 1949). More recently, Austrian School economists have elaborated the relationship between the term structure of interest rates and the business cycle (Barnett and Block, 2009; Bagus and Howden, 2010; Bagus et al., 2018; Potuzak and Nemec, 2020; Alonso-Neira and Sanchez-Bayon, 2023). At the same time, market practitioners understand the potency of yield curve inversions as a predictor of future recessions as a result of experience and observation unrelated to Austrian Business Cycle Theory (ABCT). Reference textbooks (Stigum and Crescensi, 2007) explain that capital allocators are pricing in future cuts to the central bank discount rate, thus inverting the yield curve. This ignores the role of free-market price signals in credit, which result from supply and demand fundamentals, and are the link connecting ABCT to term structures.The term structure of commodities markets is also affected by actual or anticipated shortfalls in production over different time horizons. This is widely understood, perhaps because settlement by physical delivery is commonplace and tangible (Hull, 2022). Even though credit and derivatives may at first glance seem more abstract, the same underlying market principles are at work there. The theoretical foundations of and recent work on ABCT provide the necessary tools to analyse both markets through the same lens.

Bank shocks and the debt structure

Abstract This article studies how sudden changes in bank credit supply impact economic activity. I identify shocks to bank credit supply based on firms’ aggregate debt composition. I use a model where firms fund production with bonds and loans. In the model, bank shocks are the only type of shock that imply opposite movements in the two types of debt as firms adjust their debt composition to new credit conditions. Bank shocks account for a third of output fluctuations and are predictive of the bond spread.

Elusive competition: impact of non-bank credit providers’ financing on credit market competition

Elusive competition: impact of non-bank credit providers’ financing on credit market competition

Not all banking crises are alike: Assessing their distributional impacts relative to pre-crisis credit gaps

The empirical literature on the effects of banking crises on income inequality has yielded mixed findings. In this paper, we aim to reconcile these mixed results by evaluating the effects of banking crises on income inequality in relation to pre-crisis credit gaps. We apply the Local Projections methodology to a yearly panel of 68 banking crises that occurred in 59 countries over the period 1970–2017. Three key results emerge. First, banking crises lead to increased income inequality. Second, only those banking crises preceded by larger credit gaps show a significant increase in income inequality. Third, a deeper contraction in the credit supply and a higher unemployment rate are two channels that could potentially explain why inequality rises more after banking crises with larger pre-crisis credit gaps. These results underscore the importance of macroprudential policies that, as well as limiting the amplitude of the financial cycle and the associated risks of financial crises, could also play a key role in reducing the distributional consequences of banking crises.

Do Micro Finance Banks Influence The Performance Of Small Scale Business Entrepreneurs In Ijebu North Lga, Ogun State, Nigeria?

This paper contributes to the debate on the impact of Microfinance financial and non-financial services on the development of small-scale entrepreneurs. This study actually investigated the influence of Access to Microfinance Credit and Microfinance services on the development of small-scale entrepreneurs in Ijebu North Local Government Area of Ogun State, Nigeria. Survey research design using simple random sampling technique was employed to select 90 out of 175 registered small-scale entrepreneurs in Ijebu North LGA. Applying regression analysis on the primary data collected showed that a positive and significant relationship exists between Access to Microfinance credit and performance of small-scale entrepreneurs in the sampled areas. In addition, Microfinance service was also found to exert a significant influence on small-scale entrepreneurs’ performance, albeit, the correlation coefficient and the coefficient of determination were below average. This notwithstanding, the study concludes that Microfinance provision of credit; financial services, business support, and empowerment have positively influenced business performance, income generation, asset accumulation, and overall well-being of small-scale entrepreneurs in the sample area. It is recommended that microfinance institutions should continue to focus on expanding access to credit and other financial and advisory services to small-scale entrepreneurs to continuously improve their overall performance.

Debunking the One-size-fits-all Approach: Synergistic and Trade-off Effects of Collective Action on Household Food Security Among the Smallholder Farmers in Central Kenya

Collective action is important in ameliorating the negative externalities in agriculture to promote household food security (HFS). This study explored the effects of efficiency and livelihood collective action initiatives (CAIs) on HFS along the pathways of production and income. The efficiency CAIs pursue efficiency-enhancing collective activities including input sourcing and output marketing. The livelihood CAIs engage in household livelihood and resilience enhancing collective activities such as provision of credit and informal insurance, pooling savings and acquisition of assets. A multinomial endogenous treatment effects (METE) model and an ordered probit model were employed on cross-sectional data drawn from 532 households from Murang’a County in central Kenya. The results revealed significant differences in HFS between the efficiency and livelihood CAIs. The differences were accounted for by the variations in household and organizational characteristics that determine the capacity to leverage HFS benefits along the pathways of production and income. Both efficiency and livelihood CAIs showed a positive significant effect on HFS through production. The results further showed that income positively influenced HFS among the livelihood members contrary to efficiency CAIs that showed negative HFS effects. The HFS across the combined pathways of income and production was lower for the efficiency CAIs than the livelihood CAIs. This was mainly due to the trade-off income effects exhibited by the former and the synergies accrued from income and production on the latter. The findings suggest that the overall performance of both efficiency and livelihood CAIs in leveraging HFS from joint income and production remains tentative. Therefore, a one-size-fits-all collective action promotional policy and program design approaches for improved HFS outcomes are inadequate. The study suggests a portfolio of context-specific collective action policies and interventions that match the differences between the efficiency and livelihood CAIs and their links to HFS. The policies would confer potential synergies, spillover effects and complementarities in strengthening the synergies while mitigating the trade-offs along the income and production pathways between the efficiency and livelihood CAIs. There is a need to enhance access to information, extension and advisory services and ICT among the members of the livelihood CAIs to improve production. It is important to incentivize the non-farm livelihood-enhancing economic activities among the livelihood members to fill the household food gaps arising from low production. It is also important to establish collective action funds and micro-credit schemes with affordable interest rates. This would help to tap the opportunities for credit sourcing and pooling savings among the livelihood members while promoting collective input sourcing and output marketing among the efficiency CAIs.

Credit Risk Management Practices and Profitability of Regulated Digital Credit Providers in Kenya

Credit Risk Management Practices and Profitability of Regulated Digital Credit Providers in Kenya

The impact of customer concentration on the provision of reverse trade credit

PurposeThe purpose of this study is to investigate the impact of customer concentration on the provision of reverse trade credit at the firm level.Design/methodology/approachUtilizing unbalanced panel data of Chinese A-share listed firms from 2007 to 2022 as the study sample, this paper employs a fixed-effects model to investigate the association between customer concentration and firms’ reverse trade credit.FindingsThis study finds that firms with higher customer concentration receive less reverse trade credit. Heterogeneity tests reveal a significant amplification of reverse trade credit in high-tech firms but a detrimental impact in large-sized, competitive and high-analyst-following firms. Further studies conclude that firms’ motivations, including bargaining power, financing and transaction guarantee motivations, collectively influence the extent of reverse trade credit acquisition.Originality/valueTo our knowledge, this paper represents the first attempt to conduct a comprehensive investigation of reverse trade credit, specifically through the lens of customer concentration, utilizing firm-level panel data sourced from a singular country.