Credit Supply Research Articles

Does Direct Monetary Policy Affect the Supply of Bank Credit to Small and Medium-Sized Enterprises? An Analysis Based on Chinese Data

In order to develop the real economy and solve the problems of enterprise financing and lending, banks should increase their support for SMEs (small and medium-sized enterprises). The People’s Bank of China introduced two direct monetary policy tools in June 2020, which are important for alleviating the financing problems of SMEs, improving the construction of financial support for the real economy and promoting the recovery of economic development. This paper manually collects annual data on the loan balances of SMEs from listed commercial banks in China from 2011 to 2021, and it empirically tests the implementation effects of the direct monetary policy tools using the double-difference model and the moderating effect model. The results of the study indicate that the implementation of the direct monetary policy tools can increase the credit supply of commercial banks to SMEs. The moderating effect of digital inclusive finance on the impact of direct monetary policy on the credit supply of SMEs is not statistically significant for the time being. Therefore, it is necessary to improve the transmission mechanism of structural monetary policy, establish a sustainable development mechanism for digital inclusive finance, and guide commercial banks to improve their capital strength and profitability so that structural monetary policy tools can be most effective.

‘Our Practice Has a Superiority:’ Debt Enforcement, Bills of Exchange, and Credit in Eighteenth-Century Glasgow

Abstract This article explores the relationship between the Scots law of bills of exchange, debt enforcement procedures, and credit in the eighteenth century. Compared to England, Scots law’s procedures for recovering debts on obligations were faster, cheaper, and more efficient. These legal provisions are under-appreciated in the current literature on bills of exchange. Scots law’s superiority meant that the provision of medium-value credit in urban economies often occurred through written obligations. Using a new archival data set of nearly 300 bills of exchange from Glasgow, this article demonstrates how Glaswegians used those instruments. It finds that elements of the law of obligations traditionally stressed in the literature, namely negotiability, do little to explain the use of credit instruments in Glasgow. Instead, it was Scots law’s quick recovery procedures that account for their patterns of use. The data shows that inland bills did not commonly pass from hand to hand but instead were held as proofs of debt that could quickly be enforced. The advantage of Scots law in this area did not go unnoticed by contemporaries, and unsuccessful attempts at legal reform in the Victorian era sought to introduce the Scottish rules to the English system. This article joins a growing literature in turning scholarly focus away from the negotiable properties of bills, and shows the importance of expedited enforcement procedures for understanding the Scots credit system. It suggests that paying closer attention to procedural law and differences between jurisdictions can advance research agendas on the relationship between law and economic development.

Toward sustainable agriculture: The impact of interest‐free credit on marketing decisions and technological progress in Pakistan

AbstractFarm credit plays an essential role in fostering agricultural productivity. In smallholder agriculture, it aims to provide financial cushion and improve market outcomes leading to improved resource distribution, thus maximizing social and economic returns. In Pakistan, about 90% of farmers are smallholders with the least access to formal financial services. This study explores the impact of sustainable finance—interest‐free credit (IFC)—on smallholders' marketing decisions, producer prices, and technological progress. It explains how liquidity constraints affect itinerant market (primary and secondary) participation and how smallholders get trapped in classical credit bondage with village‐level moneylender‐cum‐traders and do not take advantage of temporal and spatial arbitrage. We use cross‐sectional data from 637 farm households in Punjab‐Pakistan. The results show that interest‐free credit provision and village‐level credit density improve smallholders' level of current and future market participation and increase the producer prices for rice and wheat. The results indicate that sustainable finance improves the vertical linkages between smallholder producers and markets, increasing sustainable supply response and farmers' income. Further, the results show that IFC provision improves technological progress by enhancing the uptake of modern crop varieties, improving cultural operations, and promoting sustainable crop residue management. The findings advocate the interplay between sustainable finance, smallholders' market integration and income earning and provide coherent insights for policymaking. The study suggests mechanisms to improve broader coverage of sustainable finance for breaking the semi‐subsistence‐oriented farming systems, improving technological progress and realizing sustainable development goals, like rural poverty reduction and improved food production and distribution in developing countries.

Komparasi Algoritma Naïve Bayes Dan Support Vector Machine (SVM) Untuk Klasifikasi Kelayakan Pemberian Pinjaman

Cooperatives are social organizations or economic bodies that have a very important role in the growth, development of economic potential and community success. One of the cooperative activities is the provision of credit or loans to community members. Cooperative credit is one of the most important banking activities and serves to provide credit to the community. In practice, errors often arise due to inaccurate credit analysis, or the behavior of the customers themselves. The purpose of this research is to compare the accuracy results between the Naive Bayes algorithm and Support Vector Machine (SVM), where the best accuracy results can later be used as a reference to determine the profitability of lending. The attributes used in this study consist of 11 attributes, namely: Gender, marital status, occupation, relatives, nominal income, income criteria, loan amount, loan term, interest rate, installments and class as income characteristics. The dataset used in this study includes 166 members of the Daru Nahdla Capita Shari'ah cooperative. The results of testing the naive bayes algorithm after dividing the data five times, dividing the data set 70% as test data and 30% as training data, obtained a precision value of 97.00%, recall 100.00%, F1 score 99.00%. and accuracy 98.00%. Thus, the Naive Bayesian algorithm is an algorithm that shows accurate classification and prediction

Does fintech lending expansion disturb financial system stability? Evidence from Indonesia

Literature suggests two contradictory views regarding the impacts of fintech lending on banks. The competition-instability proponents believe that fintech lending expansion erodes bank market and threatens banks as traditional intermediaries, thereby intensifying bank risk-taking and potentially disturbing financial stability. In contrast, the competition-stability proponents believe fintech lending reduces asymmetric information in the credit market, thus reducing bank risk-taking and increasing bank resilience to a systematic shock. This paper aims to examine the impacts of fintech lending expansion on bank-risk taking, i.e., credit channeling activity and bank risk. This study utilizes the OLS, random effects, fixed effects, and two-step GMM regressions to test the conjectures. Consistent with the competition-stability hypothesis, our evidence indicates that shadow banking increases as banks actively seek channels to diversify their risks but are less likely to use fintech lending as a credit channel. This paper also corroborates the notion that fintech lending expansion encourages banks to diversify their risks. Pertaining to the relationship between fintech lending and bank risk, our results suggest that fintech lending expansion encourages banks to work more efficiently to improve their credit quality rather than to intensify bank risk-taking. These findings also indicate that synergy between fintech lending and banks would increase bank credit quality. This paper also examines the reasonable credit limits for fintech lending firms based on MSMEs’ characteristics. Employing the threshold regression, we find that IDR5 billion is the maximum credit provision to induce the profitability of MSMEs whereas IDR6 billion is the maximum credit provision to minimize the default risk of MSMEs.

Consumer behaviour and credit supply: Evidence from an Australian FinTech lender

Using a proprietary dataset from an Australian leading FinTech lender, we provide insights into the effect of consumer behaviour on FinTech lending patterns. Out of seven consumption categories, gambling expenses significantly reduce the lender's willingness to fulfill loan requests. Cash usage and repeated borrowing are related to lower offer-to-requested loan ratios. The FinTech lender prefers to lend to borrowers who are married, have dependents and/or aged over 30. However, for such mature borrowers, cash usage and repeated borrowing increasingly reduce the approval likelihood of their loan requests. Taken together, our empirical evidence suggests that consumer behaviour affects FinTech lending decisions.

THE EFFECT OF LENDING CREDIT ON INCREASING BUSINESS INCOME SMALL AND MEDIUM BANK BTPN PARTNERS BUSINESS PEOPLE PANDEGLANG (CASE STUDY OF BANK BTPN MITRA BUSINESS CUSTOMERS

This study aims to determine how big the influence of lending on the increase in income of small and medium enterprises at Bank BTPN Mitra Usaha Rakyat Pandeglang (Case Study on Customers of Bank BTPN Mitra Usaha Rakyat Pandeglang). The problem in this research concerns the insufficient amount of capital so that achieving fast business progress usually takes a long time. The research method used is quantitative associative. The population in this study were 92 customers who took credit at Bank BTPN Mitra Usaha Rakyat Pandeglang in 2020. The sampling technique used in this research is accidental sampling technique. Data analysis techniques used in this study include Validity Test, Descriptive Analysis, Correlation Coefficient Test, Coefficient of Determination Test and t Test. The results of the calculation show that there is a moderate effect between the provision of credit on increasing income with a correlation of 0.480. The coefficient of determination of 0.231 or 23.1% means that it shows that the variable of credit has an effect of 23.1% on the increase in income, the remaining 76.9% is influenced by other factors not explained by the researcher. The results of the hypothesis test show that the tcount > t-table is 5.196 > 1.66196. So the value of t-count is greater than t-table thus Ha is accepted and Ho is rejected. The test results show that there is a significant effect between lending to increasing income.

Creditor rights, collateral reuse, and credit supply

Securities dealers receive mortgages as collateral for credit lines provided to mortgage companies and reuse the same collateral to borrow money. Exploiting the 2005 BAPCPA rule change, which granted mortgage collateral preferred bankruptcy treatment, I find that strengthening creditor rights increases dealers’ collateral reuse. Increasing collateral reuse creates a money multiplier that increases credit supply. Using a novel dataset linking dealers to the mortgage companies they fund reveals that post-BAPCPA, dealers supply additional credit to mortgage companies by increasing credit lines and relaxing restrictions on collateral securing them. In response, mortgage companies increase origination volume and shift into riskier products.

Does national culture impact trade credit provision of SMEs?

Does national culture impact trade credit provision of SMEs?

ASSESSMENT OF CHARACTER AS A MAIN ASPECT IN THE IMPLEMENTATION OF PRUDENTIAL PRINCIPLES IN BRI'S MICRO BUSINESS CREDIT

In carrying out its function as an intermediary institution, banks are required to apply the precautionary principle, in particular channeling funds through the provision of credit. In Article 29 Paragraph (2) of the banking law, Banks are required to maintain the Soundness level of the bank in accordance with the provisions on aspects of capital adequacy, asset quality, liquidity management, earnings, solvency and other aspects related to bank activities in accordance with the principle of prudence . The most important aspect in extending credit is the existence of a guarantee, especially material guarantees, it is urgent to apply the precautionary principle regulated in POJK NO 42/PJOK 03/2017 which requires banks to own and implement bank credit/financing policies.

Threshold Effect in the Bank Lending Channel of Monetary Policy Transmission and the Role of Bank Portfolio Deterioration: A PSTR Specification in the WAEMU Zone

The objective of this paper is to analyse the influence of monetary policy on credit supply in the WAEMU zone over the period 1996-2017. The study focuses on the WAEMU countries, except for Guinea-Bissau, due to the unavailability of sufficient data. We apply the Panel Smooth Transition Regression (PSTR) model of Gonzalez et al. (2005). The results reveal the non-linearity of the link between monetary policy and credit supply. There is a threshold of credit risk exposure of 8.726% above which monetary policy loses its effectiveness. Indeed, monetary policy has a positive effect on the supply of credit when the value of the gross bank portfolio deterioration rate is less than or equal to the threshold of 8.726% and an insignificant effect above this threshold. Above this threshold, the link between monetary policy and bank credit supply is distended. In this case, it is the level of economic activity that stimulates the supply of bank credit in this area. These results indicate that the effectiveness of the monetary policy conducted by the Central Bank of West African States (BCEAO), through the bank credit channel, should take into account the level of credit risk attained by banks. Thus, the study recommends that the authorities further strengthen prudential supervision within the WAEMU.

COVID-19 pandemic and corporate liquidity: The role of SOEs’ trade credit response

Although state-owned enterprises are associated with less efficiency and lead to resource misallocation, they may have stabilizing effect in face of a crisis. Exploiting the COVID-19 pandemic as a natural experiment, we study the role of firm ownership in trade credit provision and find robust evidence that SOEs increase their trade credit to downstream firms more than non-SOEs after the outbreak of the pandemic. Moreover, we explore the underlying mechanism and find that better financing ability and multitask of the SOEs contribute to greater trade credit during the pandemic, and the latter plays a more active role. Further analyses show that SOEs’ advantage in trade credit extension is more pronounced in industries with higher external financial dependence and provinces with a higher level of government involvement. Our paper provides new insights into the real effects of SOEs on the economy.

Exploring the determinants of Fintech Credit: A comprehensive analysis

In recent years, FinTech credit has witnessed significant growth in the market. While previous studies have explored various factors that drive FinTech credit, a comprehensive evaluation of the determinants from the supply/demand side and risk perspective has been lacking. Thus, we examined the determinants of FinTech credit by analyzing a large collection of economic variables from 41 countries between 2013 and 2020. For this purpose, the dimension reduction technique was adopted to abstract the key determinants. The results are as follows. (1) FinTech credit is positively correlated with economic and technological development, which is more pronounced in countries with lower inflation rates. (2) It is negatively correlated with financial risk and bank competition, which is stronger in countries with lower levels of bank credit. (3) It is complementary, rather than substitutive, to traditional bank credit. The implication of the findings is that FinTech credit plays a crucial role in addressing the issue of insufficient bank credit supply.

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.

Modelling a manufacturer-retailers trade credit supply chain using game theory

Game-theoretic trade credit models are quite scarce, especially in relation to product promotion. This work examined a trade credit supply chain involving a manufacturer and two retailers in a decentralised supply chain in which the retailers engage in product promotion while the manufacturer financed them through credit provision. It considered a supply chain structure in which the manufacturer provides trade credit to the retailers and a situation in which he does not provide trade credit. It used Stackelberg game theory to determine the optimal promotion efforts, the credit periods and the players’ payoffs, and showed that while the manufacturer is better-off with the retailers’ efforts, the retailers need to consciously determine appropriate optimal effort to avoid getting short-changed. It also showed that while credit period reduces with the manufacturer’s margin, it increases with a retailer’s margin. It further showed that while the retailers’ payoffs reduce continuously with credit period, the manufacturer’s payoff is fixed in the long-run irrespective of the credit period provided by the manufacturer to the retailers. By comparison the players as well as the channel perform better with the adoption of trade credit, however a retailer must avoid placing he price margin at equality with that of the manufacturer if he hopes to enjoy long credit period.

Banks, credit supply, and the life cycle of firms: Evidence from late nineteenth century Japan

How does local credit supply affect economic dynamism? Using an exogenous bond shock in historical Japan and new genealogical firm-level data, we empirically examine the effects of credit availability on firm life cycles. We find that the lifespan of firms decreases with bank capital and that capital-abundant regions have more firm creation and destruction. These effects are amplified for manufacturing, while service sector firms experience no change in longevity and have less creation. Our results suggest that samurai bonds were conducive to the emergence of banking, which eased firms’ financial constraints and led to more capital-intensive investment and economic dynamism.

Countercyclical capital buffers and credit supply: Evidence from the COVID-19 crisis

This paper examines how European banks adjusted their lending subsequent to the release of the countercyclical capital buffers (CCyB) during the COVID-19 pandemic. At its onset in 2020Q1, being exposed to a higher ex-ante countercyclical capital buffer led to a reduction in banks’ lending. Yet the relief of the CCyBs removed this negative effect from 2020Q2 onwards. We find that the reduction in CCyBs led to a significant relative increase in the average bank’s lending by about 5.6 percentage points of their total assets. This increase happened mainly in retail mortgage loans and was stronger for poorly-capitalized banks. These results imply that the release of the CCyBs was effective in promoting bank lending during the pandemic.

Africa’s businesswomen – underfunded or underperforming?

While the recent success of Africa’s ‘Lionesses’ – successful female entrepreneurs – is internationally celebrated, less is known about how liquidity can fuel the success of the ‘Lionesses’ and other businesswomen. Using information from a panel of over 800 male- and female-owned businesses in Ghana (ISSER-IGC survey), we capture a measure of underfunding, in addition to data on supplier credit, equity and other finance sources. Our regressions reveal a female-to-male productivity gap of between − 11 and − 19 per cent, values similar to estimates for other African countries. However, when financial constraints are taken into account, the gender performance gap disappears. Accordingly, female business owners who indicate that funding is not a problem are associated with higher productivity than males, all things equal. In a finding new to the literature, our regressions reveal the importance of supplier credit for Africa’s businesswomen.

Prepayment and credit utilization in peer-to-peer lending

PurposeThis research analyzes borrowers' credit utilization through prepayment behavior in peer-to-peer (P2P) lending. The authors investigate factors influencing the decision to prepay and assess the role of P2P lending as an alternative source of consumer credits.Design/methodology/approachThe authors use individual loan-level data from the LendingClub, one of the largest P2P platforms in the USA. The authors use a Logit model and a sample selection model estimated by the two-stage Heckman method. The empirical analysis considers borrower-specific and loan-specific characteristics as well as macroeconomic factors.FindingsThe authors present a number of significant findings that can enhance understanding consumers' financing decisions. The authors offer evidence that borrowers are able to take advantage of cheaper loans offered by P2P lending to better manage credit card balance and consolidate debt. The authors find that borrowers tend to prepay P2P loans quickly when the aggregate cost of borrowing is low, suggesting that P2P lending offers an efficient alternative to obtain credit. This is particularly true for creditworthy borrowers that are able to take advantage of competing sources of finance. The authors' results provide evidence that P2P lending can improve consumers' optimal credit utilization.Originality/valueP2P lending has grown exponentially and has become a significant credit supplier to consumers and small businesses. While the existing literature mostly focuses on default risks, prepayment has received much less attention. This research fills in the gap and investigates borrowers' prepayment behavior in P2P loans and the role of P2P lending as an alternative source of consumer credits.

Credit supply, homeownership and mortgage debt

We analyze the effect of credit supply on households’ homeownership and home equity outcomes. Banking deregulation together with states’ autonomy to limit deregulation provides an exogenous shift in credit supply which shows variation across states and time. We find that a shift from full to no regulation increases the probability of homeownership by one percentage point, and of having a mortgage by two percentage points, explaining up to 43% of the increase in homeownership and the share of households with mortgages. Mortgage debt increases by up to 20%. Household leverage and debt exposure measured as debt to income ratio increase slightly for households outside of MSAs.