Lending Policies Research Articles

Influence of Entrepreneur and Firm Characteristics in Accessing Bank finance

SMEs are mostly guided by the owners’ characteristics which is an indicator of the level of decisions taken in the firm. Access to credit is a prerequisite for a high performance of an SME. The paper aimed at establishing the empirical link between entrepreneurs and firm characteristics and access to bank financing by SMEs in Eldoret town. Descriptive and explanatory research designs were employed in the study. A chi-square test of association was used to determine the relationship between study variables. The study findings indicated that gender and number of employees had a significant influence on access to bank financing. Male entrepreneurs are more likely to get bank financing compared to their female counterparts, while an increase in the number of employees increases the success rate of getting bank financing. However, age, education, business form, number of years of operation, stage of business and average turnover were found to be insignificant in obtaining funding. The study concluded that entrepreneur characteristics namely gender and relation to business and firm characteristics specifically structure of the business, economic sector and the average turnover determines the likelihood of banks financing SMEs. Entrepreneurial and firm characteristics were found to be important in access to bank financing. The study recommended that government and other service providers incorporate additional simplified components to their training packages to cover such areas as bookkeeping and development of business plans. Banks should develop lending policies which are friendly to Small and Medium Enterprise contexts. Keywords: Entrepreneur, firm characteristics, access, bank financing, SMEs

Becoming a central bank: The development of the Bank of England's private sector lending policies during the Restriction

AbstractThis article studies the changes that took place in the Bank of England's Restriction‐era policies governing private sector lending. The findings show that the Bank was adapting to novel monetary circumstances, created both by the evolution of the English financial system and by the Restriction itself, and that, although the process was far from smooth, the Bank was learning to act as a central bank: during this period the Bank transformed its internal operating procedures to put regulation‐based constraints on its private sector lending, established regular reviews of its policies and their effects on the money market, and adopted a distinct crisis‐orientated lending policy. In addition to establishing that these core central bank activities developed over this period, the article also shows that for 18 months starting in 1809 the Bank's policies were destabilizing, and that the Bullion Committee probably played a role in a shift in Bank lending policies that took place in mid‐1810. Overall, this study finds that the 1810 crisis was a turning point in the Bank's understanding of its role in the economy: the Bank directors both acknowledged privately the Bank's duty to the public, and restructured its discount policies with a view to promoting financial and monetary stability.

THE ROLE OF INTERNATIONAL MONETARY FUND (IMF) IN ECONOMIC RECOVERY DURING ECONOMIC CRISIS OF INDONESIA

The International Monetary Fund (IMF) has a primary role in providing financial support to countries facing financial crises, such as the 1998 world financial crisis. The situation has brought an enormous impact on developing countries, particularly Indonesia. This paper explores the role of The IMF and maps out the problems related to the financial crisis and its impact on Indonesian political reforms. It will be done by compiling the milestones in chronological order from 1997 until 2017. It also aims to examine the lending policies of the International Monetary Fund, which brings a country like Indonesia becomes addicted and difficult to survive or improve in its economic development. There will be an understanding of how the actual process happens. It can be used as an instrument to assess whether the existence and role of the IMF in Indonesia have a better or harmful impact on the long-term economic development of Indonesia. Keywords: The International Monetary Fund (IMF), Economic Development, Financial Crisis

DATA MINING APPLICATION FOR FINANCIAL DECISION OPTIMIZATION AT RISK

Financial decisions can add value to the existence of businesses or individuals, as well as a wrong financial decision can cause businesses to cease to exist. Hence, financial decision or financial assumptions are vital for businesses or individuals. In financial assumptions, risk refers to the probability of losing as a result of an investment made in an asset. Measures can be taken against possible risks in the future through financial assumptions. In this study, the logistic regression analysis (LR) method, one of the traditional methods, and the machine learning algorithm support vector machines (SVM) method, which is one of the new approaches, are compared in the loaning process. It is aimed to determine the importance of the compared methods, the accuracy of the model, the estimation power of the model, the estimation performance of the model, the determination of the importance of the independent variables that affect the non-repayment of the loan, and the superiority of the methods. According to the analysis results, the SVM method is superior to the LR method in calculating accuracy rate and prediction rate, and the LR method is superior to the SVM method in assumption performance calculation. The most significant variable in the SVM method is "Lending policy", the most significant variable in the LR method is "Interest rate", the second significant variable is "Interest rate" in the SVM method, and "Lending Policy" as the second important variable in the LR method. It is seen that the third most crucial variable in the two methods is the "Income" variable. The determination of the SVM method as the more important variable of the loan policy is deemed more suitable to the opinion of the banking expert. Detecting more realistic results of the SVM method compared to the LR method has shown the superiority of the SVM method.

Analyzing governance challenges using Process Net-Map: a case study of a government microcredit scheme in Bangladesh

PurposeThis paper aims to examine the governance challenges confronted by a government microcredit program in Bangladesh following a case study approach.Design/methodology/approachA novel qualitative research tool called process net-map (PNM) was applied to develop a framework for visual understanding of the exact credit implementation process and to identify the actors responsible for creating governance challenges. Key informant interviews were also conducted to identify and distinguish the challenges faced by both the supply-side and demand-side stakeholders.FindingsThe findings reveal that the studied case faced problems in allocating adequate resources to human and physical capacity development. It was combined with the shortage of funds that made it impossible to meet the clients’ expectations. The lack of legal and regulatory framework disabled the organization from controlling political influence and corruption in the system. Moreover, the policy of lending only to groups proved counterproductive as it led to the exclusion of potentially viable borrowers.Practical implicationsThe key recommendation of the study is on increasing the microcredit fund and a reform of the group lending policy along with several other recommendations.Originality/valueThe PNM is a newly developed participatory mapping technique that has not been applied in the field of microfinance. Therefore, the use of this method may add new knowledge of conducting an in-depth analysis of why such challenges are associated with mostly public microfinance programs and how they are linked to the implementation process. The challenges encountered are relevant for the implementation of developmental programs that are dependent on the allocation of public funds.

Deprived Sector Lending and Non-Performing Loans in Nepal

This study investigates the empirical impact of deprived sector lending on the nonperforming loans of commercial banks in Nepal using secondary data collected from 27 commercial banks from the fiscal year 2009 to 2018 with 262 observations. The study employed the OLS regression method for the robustness test of the result. The study establishes empirical relation between deprived sector lending and nonperforming loan of banks which was the major motivation of this study. The basic regression result shows that beta coefficient of DSL is negative which indicates higher the ratio of deprived sector lending, the lower would be the NPL and vice-versa. Similarly, this study also examines the DSL movement's impact on NPL. The result shows that the beta coefficient of ∆DSL is significantly negative with ∆NPL. This indicates that the higher the growth of DSL, the lower would be NPL growth and vice-versa. This shows that the influence of DSL is very low as per this empirical result. Overall, the study shows there is an inverse relationship between deprived sector lending and nonperforming loan of banks. The result indicates that the remark of commercial bank’s on the deprived sector lending policy of NRB is not true. The operational cost might increase with direct lending to deprive sector and that leads to decrease in the bank’s overall profit but not increases their NPL.

International Organizations Lending Policy, are There Strings Attached? A Case Study From the Latest Wave of Reforms in the Albanian Social Security System

Pension policy reform in post-communist countries received attention from most international organizations since the early 1990s. Accordingly, Albania has implemented comprehensive liberalization and privatization of the state sector since transitioning to a market economy. This study will look at the impact that the European Union (EU), the World Bank, and the International Monetary Fund had in guiding the Albanian state-run social security system toward principles of decentralization, liberalization and privatization. Specifically, social security reforms between 2009 to 2019 will be examined, along with a focus on the side-effect of the conditions imposed by the three organizations. A mixed-method including literature review and secondary data analysis will empirically evidence growing inequality, with senior citizens poverty rate sharply rising due to reforms in social security. Our conclusions will argue that closer ties with the EU will keep social security in its current form, as the EU does not push for a specific pension system, while the World Bank policy influence will lose ground, thus freeing Albania from periodic social security reforms.

Modelling a sustainable credit score system (SCSS) using BWM and fuzzy TOPSIS

ABSTRACT Sustainable development has emerged as a critical agenda for all organisations around the world. Despite the fact that profitability and sustainability are inorganically linked to financial institutions, sustainable lending has been a constant focus of attention. Due to regulatory pressure and stakeholder concerns, financial institutions are forced to implement a variety of sustainable measures; they are also gradually thinking to give more support to socially impactful and sustainable projects. Financial institutions can play a major role in establishing sustainable development by adopting the green lending policy. However, there have been few studies on sustainability credit score systems (SCSS) that take into account social and environmental factors. To fill the gaps of existing literature, this study proposes a multi-criteria SCSS that takes into account the environment and social aspects in addition to financial and managerial aspects. A combined Best-Worst Method (BWM) and the fuzzy-Technique for Order Preferences by Similarity to an Ideal Solution (TOPSIS) method are used in this study to create a credit scoring system. The BWM is used to determine the weight of factors, and the fuzzy-TOPSIS is used to evaluate applicants. The ambiguity while evaluating borrowers has been captured by applying fuzzy set theory. A real-life case study is used to demonstrate the efficacy of the proposed model. The model is unique in terms of the number of social and environmental factors considered. This research will assist financial institutions in identifying borrowers who engage in sustainable business practices. Borrowers can be holistically prioritised by applying the model.

IS MULTIPLE BORROWING A BAD SIGN? EVIDENCE FROM MICROFINANCE INSTITUTIONS IN PAKISTAN

Purpose: To improve the loan repayment performance of Microfinance Institutions (MFIs) in Pakistan, this research not only analyses the direct effect of multiple borrowing on loan repayment performance but also determining the indirect impact of multiple borrowing on loan repayment performance through the mediating role of over-indebtedness and moderate role of moral hazard between over-indebtedness and loan repayment performance.
 Design/methodology/approach: This study is based on a rich dataset comprised of information provided by the employees of MFIs working in Pakistan. The primary data were collected through the structural questionnaire, reliability and validity of construct were established in the light of different techniques including (1) Factor Loading (2) Cronbach’s Alpha (3) Composite Reliability (4) Average Variance Extracted (5) Variance Inflation Factor (6) Fornell-Larcker Criterion and (7) HTMT Ratio. Moreover, structural equation modeling techniques were applied in this study and, hypotheses were tested through bootstrapping by using PLS-SEM.
 Findings: The results confirm not the only direct impact of multiple borrowing on loan repayment performance and over-indebtedness but also mediating role of over-indebtedness between multiple borrowing and loan repayment performances. Aside from the direct influence of over-indebtedness on loan repayment performance, the moderate role of moral hazard on the association between over-indebtedness and loan payback was also found.
 Application of the Study: The findings of this study will be communicated with all Microfinance Institutions (MFIs) in the future so that policies may be developed to address the factors that negatively affect the loan repayment performance of Microfinance Institutions (MFIs). Besides this, the outcomes of this study will also enable the MFIs to launch different loaning products that not only fulfill the borrower’s requirements but also ensure the interest of MFIs.
 Originality/value: Until now, the impact of multiple borrowing on loan repayment performance through mediating role of over-indebtedness and moderating role of moral hazard in the context of Microfinance Institutions (MFIs) of Pakistan have hardly been investigated. This study also enhances the understanding of MFIs regarding multiple borrowing and its subsequent impact on loan repayment performance. Moreover, the findings of this study enable the MFIs of Pakistan to improve their loan repayment performance by formulating the new lending policies in light of the finding of this study with special reference to multiple borrowing.

Determinants of Bank Lending Policy in the Context of Yemen

The objective of this study is to identify the determinants of bank lending policy in the context of Yemen. To achieve this goal we try to study the probability of lending investment companies through a number of explanatory variables included in the multivariate model (Discriminate Analysis Model), and in the artificial intelligence model (Artificial Neural Network). To study our problem, we collected forty (40) actual cases of investment credit from eight Yemeni banks (28 agreement cases, 12 rejection cases).
 The two models have showed that the variable of guarantee has a significant influence on the decision-making process of bank lending policy. Decision makers in credit are based on a process of anticipation in the future. The findings indicated that most banks considered the type of guarantee as a key element to the success of lending decision, because, the guarantee is the best way for the bank to mulch the information asymmetries and to guard against the risk of non-repayment of loans.

The Effect of Changes in Economic Growth on Non-Performing Loans (NPLs) Problem in the Greek Banking System

The Greek economy was affected very badly by the global economic and financial crisis of 2007-2008. The main reason of this catastrophic event is that the country’s speedy economic and financial growth in the pre-crisis period heavily based on the foreign funds, and the flow of these funds stopped immediately -even turned to opposite direction- with the spread of the crisis to Europe. This negative happening as well as the rearrangement of the public debts and remarkable reduction in the bank deposits led to a big financial crisis, and thus economic recession. Meanwhile, the loan quality in the banking system worsened extremely -almost half of the credits turned to bad loan- due to the macroeconomic deterioration as well as the banks’ very tolerated lending policies before the crisis, the borrowers’ imperfect attitudes, and improper governance. The improvement in NPLs ratio, which started simultaneously with the modest economic recovery in 2017, decreased it to 30.2 percent in 2020 from its peak level of 48.5 percent in 2016. However, a big part of it has been achieved thanks to write-offs and loan-sales.In this study, it was aimed to measure the effect of the changes in economic growth on these drastic changes in NPLs ratio. Although the changes in the gross domestic product (GDP) and NPLs ratio have always been in consistency with the economic theory, except the pandemic year of 2020, the often big differences between their changing rates imply that some other factors have also played significant role on NPLs movements. The findings of some studies for Greece indicate to remarkable impact of both economic growth and the other factors on bad loans issue. The results of our regression analysis also show that the relation between economic growth and NPLs is not so strong.In spite of the noticeable improvement, NPLs ratio is still at a very high level and requires constant remarkable declines in order to come down to the generally accepted levels. To perform this and have economic and financial recovery at the same time, the recovery should not be achieved only by write-offs and portfolio sales, but by collections from borrowers, and executions. The banks and the government should make the necessary changes in their policies and applications so as to decrease NPLs ratio through new lending, compromise with proper borrowers, and court executions. Keywords: Greece, global crisis, sovereign debt crisis, economic growth, non-performing loans. DOI: 10.7176/RJFA/12-12-05 Publication date: June 30 th 2021

The European Investment Bank’s ‘Quantum Leap’ to Become the World’s First International Climate Bank

In November 2019, the European Investment Bank (EIB) announced its ‘metamorphosis’ into a ‘Climate Bank.’ Associated with the EU’s Green Deal, presented a month later, the EIB claimed to be the first international climate bank and a front runner in the EU’s priority climate agenda. The EIB is mandated through the treaties to support EU policymakers. However, with its ‘makeover,’ the EIB also announced the launch of a new climate strategy and energy lending policy, ending fossil fuel financing after 2021. It is thus valuable to examine the question of whether the EIB has developed into a policymaker, and if so, how this can be best understood. In exploring this question, this article follows a principal-agent approach, attempting to discern the rational interests behind organisational rhetoric and posits that the EIB’s claimed transformation hints at a type of policymaking activism, exploiting a policy window to serve the EIB’s rational interests in a strained political and market contest. This represents a paradigm shift in the EIB’s institutional behaviour and rhetoric within the EU governance constellation and is, in fact, in this sense a ‘quantum leap’ as suggested by the EIB. However, it remains to be seen if the bank’s metrics will prove a bold departure from their current activity or simply another adaptation to a policy field of intense interest to the EU, as has occurred on several occasions in the past.

The Effect of Internal Factor Toward Banking Credit Distribution

The country's economy is supported by banking institutions. This is because the benefits of credit are greater compared to other bank businesses such as savings fund deposit services fees, interbank delivery service fees and so on. Internal factors that affect lending include CAR, ROA, NPL, LDR and BOPO. This research was conducted with the aim of simultaneously testing CAR, ROA, NPL, LDR and BOPO on bank credit distribution. The research sample is the bank with the largest number of assets in Indonesia. Data were obtained from the financial statements of the Persero's commercial banks from 2013 to 2017, using the panel data regression data analysis method. The results of hypothesis testing on CAR have a positive influence on lending, ROA also has a positive effect on lending, NPL has a negative effect, LDR has a positive effect, BOPO has a negative effect, whereas if tested simultaneously, CAR, LDR, NPL, LDR and BOPO has a positive effect on lending. With regard to the above conclusions, bank management should be able to take into account the trend of financial ratios for several years, before determining the lending policy

How does bank credit affect the shape of business groups' internal capital markets?

ABSTRACT In empirical literature, it is hypothesized that the persistence of Business Groups (BGs) is linked to the capability of easing the financing constraints of participating firms through the implementation of an internal capital market (ICM). ICMs enable capital relocation, thus partially offsetting disparities in accessing bank credit. I offer three contributions. First, I formally ground this idea with a dynamic model in which an ICM is endogenously generated as a function of the bank's lending policy and firms' production incentives. A novelty in the literature, the model contains a trickle-down mechanism which allows bank credit to circulate across firms via inter-firm loans. Second, I study the model to understand how the ICM reacts to shocks to the following empirically critical channels: the BG's debt-to-equity ratio, the profitability of production markets and, most importantly, the bank's credit rationing policy. The model disentangles the contribution of each channel on the shape of the ICM, as measured in terms of the intensity of firms' cross-subsidization. In particular, I discover a non-monotonic relationship between the latter dimension and the intensity of cross-subsidization. Third, I match stylized facts of the so called ‘Korean crisis’ and apply the model to discipline some extant results of the empirical literature: I find that a tightening of the financial market, taken in isolation, would contribute to a densification of the ICM structure, reflecting the functioning of the credit-reallocation channel described in the literature. At the same time, the magnitude of such effect is not sufficiently strong to overcome the reduction in density as caused by the two alternative channels.

Non-performing Loans Issues in Malaysian Banking Industry

Around the world, financial institutions face massive risk on non-performing loans. As a result of the previous, financial institutions are obliged to review their lending policies. However, its nonpayment also leads to massive loss on banks in particular and the country in general. Non-performing credits (NPL) is a prevalent issue that influences budgetary markets dependability as a rule and banking industry suitability specifically. In recent decades, financial crises in various countries have often preceded the rise in non-performing loans (NPLs) in the banks' asset portfolios. The increase in NPLs is an adverse impact on the banking sector. Hence, understanding the determinants of NPLs is crucial to ensure the overall economy's efficiency and soundness. This research studies the factors affecting NPLs in the Malaysian banking industry. Through this research, the researchers can examine the relationships between the dependent variable, NPLs and independent variables, bank interest rate, inflation rate, and unemployment rate. The research uses monthly secondary data from 2015 to 2019, collected from the financial statements and DataStream and applies Descriptive Analysis, Normality Test, Correlation and Multiple Regression Analyses. The results indicate that unemployment and inflation significantly impact and relationship with the NPLs in the Malaysian banking industry. Meanwhile, the interest rate, despite its insignificance, positively affects the NPLs in Malaysia. The findings have important implications on policymaking, besides adding new knowledge to the existing literature.

The Federal Reserve's response to the COVID-19 contraction: An initial appraisal.

We provide an initial assessment of the Federal Reserve's policy response to the COVID‐19 contraction. We briefly review the historical episode and consider the standard textbook treatment of a pandemic on the macroeconomy. We summarize and then evaluate the Fed's monetary and emergency lending policies through the end of 2020. We credit the Fed with promoting monetary stability while maintaining that it could have done more. We argue that the Fed could have achieved stability without employing its emergency lending facilities. Although some facilities likely helped to promote general liquidity, others were primarily intended to allocate credit, which blurs the line between monetary and fiscal policy. These credit allocation facilities were unwarranted and unwise.

Legacies of Institutionalized Redlining: A Comparison Between Speculative and Implemented Mortgage Risk Maps in Chicago, Illinois

ABSTRACT How did institutionalized discriminatory lending policies implemented under the guidance of the Federal Housing Administration (FHA)’s mortgage risk maps impact neighborhood trajectories? Have these spatially restrictive credit designations influenced home value, homeownership, and racial segregation? Using the FHA mortgage risk map of Chicago, Illinois, for new loan guarantees as a case study, I measure outcomes between credit zones and compare these risk regions with the Home Owners’ Loan Corporation (HOLC) Residential Security Maps, which represent post hoc measures of mortgage risk and were likely not directly used in loan activities. For areas excluded from FHA loan guarantees, the results suggest a negative impact on home values and homeownership rates and weakly decreased segregation between 1940 and 1980. They also suggest an overcorrection of home values, an undercorrection of homeownership, and an increase in racial segregation in excluded neighborhoods between 1980 and 2010 when these areas may have experienced capital reinvestment. In comparison with the HOLC map, the effects on tracts in Chicago rated worst by the FHA are clearer and suggest a more significant impact during the period of discriminatory mortgage lending.

A Theory of Collateral for the Lender of Last Resort*

Abstract We consider a macroprudential approach to analyze the optimal lending policy for the central bank, focusing on spillover effects that policy exerts on money markets. Lending against high-quality collateral protects central banks against losses, but can adversely affect liquidity creation in markets since high-quality collateral gets locked up with the central bank rather than circulating in markets. Lending against low-quality collateral creates counterparty risk but can improve liquidity in markets. We illustrate the optimal policy incorporating these trade-offs. Contrary to what is generally accepted, lending against high-quality collateral can have negative effects, whereas it may be optimal to lend against low-quality collateral.

The World Bank and its political role in its lending policy

The World Bank and its political role in its lending policy

Effect of Interest Rate Regulation on the Relationship Between Loan Lending Policies and Financial Performance of Commercial Banks in Kenya

The first specific objective was to determine the relationship between credit risk management and financial performance of commercial banks in Kenya. The second specific objective was to determine the effect of interest rate regulation on the relationship between loan lending policies and financial performance of commercial banks in Kenya. The study used descriptive research design and the research philosophy used was positivism. The study adopted a census survey and purposive sampling method targeting 43 bank managers, 43 credit managers and 43 operations managers of the 43 commercial banks in Kenya for period 2013 to 2018. Document analysis guide was used to collect secondary quantitative data for period 2013 to 2018 from the commercial bank’s financial reports and questionnaires were used to collect primary data. The questionnaires which were administered to the respondents were structured. Content validity was used to determine the validity of the instruments. Data was analyzed using multiple linear regression method. The findings of the study revealed that loan lending policies; credit risk management measured by (non-performing loans and debt collection costs) have a significant and negative impact on ROA of commercial banks in Kenya. The study findings revealed that there exists a relationship between interest rate regulation, loan lending policies and financial performance of commercial banks. The study recommended that commercial banks should strengthen its loan lending procedures, use the services of Credit Reference Bureau, train credit officers on how to scrutinize customers and give out loans which have collateral security only. Keywords : Loan lending policies, interest rate regulation, credit risk, non-performing loans financial performance, commercial banks DOI: 10.7176/RJFA/12-4-05 Publication date: February 28 th 2021