Small Borrowers Research Articles

A meta‐analysis of the state and local government borrowing costs

AbstractState and local governments seek to save money through fiscal efficiency. One such mechanism widely studied in the literature is through the choice for financial underwriting of debt. The extant literature generally suggests that state and local governments can lower borrowing costs through a competitive method of sale. In a meta‐analysis of 418 effects from 97 studies, we find that competitive sales do enjoy a statistically significant reduction in borrowing costs However, these effects are moderated when using key control variables, the use of more recent data, as well as due to measurement and methodological choices. Consequently, despite a large number of studies in this area, more research specific to small borrowers, new and understudied contexts, or those using sophisticated selection and causal methods is needed to understand whether the practical preference for competitive sales should persist.

Debt Flexibility

This paper documents new facts on the modification of bank loans using FR Y-14Q regulatory data on C and I loans. We find that loan-level modifications of key contractual terms, such as interest and maturity, occur at least once for 41% of loans. Cross sectional differences in modifications are substantial and amplified by borrower distress. Relative to single-lender loans, syndicated loans are 1.5 times more likely to be modified and interest rate changes are twice as likely. Our findings call into question whether 1) creditor dispersion makes loan modifications more challenging and 2) relationship lending between banks and small borrowers creates more scope for flexibility when borrower-level conditions change.

Pradhan Mantri Mudra Yojana

The setting up of Pradhan Mantri Mudra Yojana and MUDRA attempted to fill or reduce the financial crisis in the micro enterprises to stimulate economic development. MUDRA has been aimed at administering a common platform to both banks and tiny enterprises customers and plays a significant role by bringing them together to this platform. It has been set up as a refinancing institution. Its main goal is to provide mudra loans up to Rs 10,00,000 to the micro enterprises through last mile financiers, so that they can start or expand their businesses. Its primary goal is to refinance various last-mile financial institutions that support the growth of small businesses in the non-corporate sector by lending money to them. These last mile financial institutions include NBFCs, Regional Rural Banks, Commercial Banks, Small Finance Banks, and MFIs. These institutions provide funds to the small business sector which is involved in manufacturing, trading, and Agri-allied activities. The borrower can approach to any of financial institution to get the benefit of mudra loans and to serve the purpose of their existence.
 Mudra scheme helps millions of small borrowers who were facing the acute financial shortage due to numerous reasons and were striving hard to get the financial assistance for starting or expanding their business activities. In this study, an effort has been made to use statistical methods like mean, coefficient of variation, and trend analysis to examine the category-wise performance of various mudra loans during a six-year period, from 2016–17 to 2021–22. The analysis is based on secondary information that was obtained from the MUDRA official website. The interpretation of the figures for the study period indicates that among the three main categories of Mudra Loans, Shishu Loan Scheme has captured the largest share in terms of number of accounts as well as in terms of amount sanctioned followed by Kishore and Tarun Loans. Since its origin, over a period of seven years of operations i.e., from 2015-16 to 2021-22, PMMY has benefitted in aggregate approximately 34.92 crore loan account holders of micro enterprise segment by administering an aggregate amount of 18.90 crore.

Exchange rate risk, banks' currency mismatches, and credit supply

We exploit the post-Brexit depreciation of the British pound as an exogenous shock to show how exchange rate shocks transmit to the German real economy through the banking sector. German banks with GBP currency mismatches (between assets and liabilities, including off-balance sheet items) suffer losses when the currency of assets depreciates relative to that of liabilities, which they internalize by cutting back credit supply. For a one percentage-point loss in equity, a bank cuts credit supply by 73 basis points on average, with stronger effects for banks with lower equity capital. The credit contraction of German banks (i) affects also firms that are not directly related to UK conditions, (ii) holds across all industries, including non-tradable sectors, (iii) impacts relatively more small borrowers, and (iv) decreases affected firms' investments.

Analytical Study of Managerial Function in Urban Cooperative Banks in Nagpur City (2016 to 2021)

The term Urban co-operative Bank’s refers to Primary Co-operative Banks located in Urban and semi-Urban Areas. Until 1996, these Banks were Only Permitted to lend money for non-Agricultural Purposes. This Distinction is non longer valid today. Traditionally, these bank’s were Centered on Communities, Localities, and Workplace Group’s. They Primarily gave loans to small borrowers and businesses. Their Scope of operations has expanded Significantly Since then. They are registered and governed by the respective state’s. co-operative societies Acts, as well as the banking regulation Act of 1949, and thus are Subject to Dual Regulatory Control. The RBI only Partially regulates Urban Co-operative banks. Their banking operations are governed by the RBI, Which establishes Capital adequacy, risk management, and lending Standards. However, there management and resolution in the event of acrisis are governed by the register of co-operative societies, who works for either the state or the federal government. Primary Urban co-operative banks with Deposits of more than rs. 50 crore are also permitted to operate in more than one state, subject to certain conditions. They have certain rights and obligations because they are covered by the RBI Act, 1934 (2nd Schedule) rights to obtain refinance and loans from the RBI and obligations such as maintaining Cash reserves and so on the move comes after the RBI announced in September 2018 a Scheme for voluntary conversion of urban co-operative Bank.

Research Report on Financial Performance of MUDRA Yojna for the time period of 2015-2019

Pradhan Mantri Mudra Yojana (PMMY) is a flagship scheme of Government of India to “fund the unfunded” by bringing such enterprises to the formal financial system and extending affordable credit to them. It enables a small borrower to borrow from all Public Sector Banks such as PSU Banks, Regional Rural Banks and Cooperative Banks, Private Sector Banks, Foreign Banks, Micro Finance Institutions (MFI) and Non Banking Finance Companies (NBFC) for loans upto Rs 10 lakhs for non-farm income generating activities. The scheme was launched on 8th April, 2015 by the Hon'ble Prime Minister. In India many things revolve around mere perceptions, while getting into detail it often paint a different picture. It is a common misperception people have that large industries create more employment, though the truth is that “in India only 1.25 crore people find employment in large industries, whereas small enterprises employed 12 crore people”. In India, small businesses play an important role by providing employment to a large number of people. It is the second largest sector engaging uneducated and unskilled people after agriculture. Further, millions of low income earning group person aspire to set up small businesses but are unable to start, mostly due to credit limitations. Since banks do not find them eligible for credit loan. After identifying the importance of self employment people and small business units, government of India launched MUDRA Yojana to address the financial and other constraints. This paper is an attempt to know about the MUDRA Yojana and its key objectives. The paper highlights the role and importance of MUDRA bank towards small business units, it also review the Mudra yojna for the year of 2015-2019 in terms of many aspects.

Research on the Financing Capability of Chinese SMEs

The evaluation of financing ability is very important to promote the small and medium-sized borrowing capacity of science and technology, and it is the first premise to clarify the financing obstacles of enterprises. However, the traditional view only emphasizes the role of self-ability and neglects the research of financing environment. With the development of national economy, science and technology-based small and medium-sized enterprises have received extensive attention, mainly because science and technology-based small and medium-sized enterprises are the main force to promote national economic development. Because of their own and external factors, small and medium-sized science and technology enterprises generally have financing problems. Improving the financing ability of small and medium-sized enterprises is an effective way to solve the problem of capital shortage. At the same time, many small and medium-sized enterprises face more risks in their development, and their growth is unpredictable, which makes it difficult for financial institutions such as banks to make loan decisions. However, at present, some small and medium-sized enterprises still have many unsolved problems in the financing process, which affects the development of high-tech small and medium-sized enterprises. This requires relevant departments to pay full attention to the optimization of their financing system, constantly innovate financing methods and lay a solid foundation for their subsequent development.

Impact of microcredit on income and employment of self‐help group members in Punjab: Does credit size matter?

AbstractThis study evaluates the impact of microcredit on the income and employment level of participants before and after joining self‐help groups (SHGs) and variations based on the size of microcredit. Data was solicited from 318 SHG members using multistage random sampling. The mean value of income and employment of SHG members before and after joining SHGs were compared by using t‐statistics. The logistic regression technique was used to ascertain whether the income and employment level of SHG members varies significantly with the size of microcredit. We found significant improvement in the income and employment levels of participants after joining SHGs. The results of the logistic regression model revealed that the probabilities of members earning an income of more than 3,000 Indian Rupees (INR) per month and having employment of more than 180 days were very high among large borrowers as compared to small borrowers.

Relation of Financial Literacy with Financial Attitude and Financial Behavior among Tharu Woman Small Borrowers

Tharu are an ethnic group indigenous to the Terai region of Nepal stretching from east to west low-land of Nepal. The Tharu communities are normally residing in most of the districts of the Terai belt of Nepal. The paper tries to find out the relationship between financial literacy with financial attitude and financial behavior among the Tharu community women of Nepal. Hence, the paper has conducted a survey among the Tharu women living at Nawlapur District of Gandaki Province of Nepal. The paper found that Tharu women who are in a saving group, mainly focused on income saving and looking for an opportunity cost. Similarly, Tharu women associated with a saving group, are mainly concerned with the utilization of the credit, they had taken and worked for the repayment of the credit in time. The study also found that financial literacy has highly influenced financial behavior among Tharu women of Nepal. At the same time, the level of financial literacy is not seen as highly influencing the financial attitude among the Tharu women of Nepal.

Regional Bank Consolidation and SMEs’ Credit Availability: Evidence from China

We conjecture that locally government-led bank consolidation may negatively affect the SMEs’ credit availability in China because the breakdown of privately benefit-based relationships among small business borrowers, loan officers, and senior managers could reduce loan officers’ incentives to use their soft information. Empirical results show that this is indeed the case.

Borrower income and loan rates in the credit market of Lima

ABSTRACT I analyse the effect of borrower income on loan rates in the credit market of Lima in 1840–65. I show that borrower income had a negative effect on interest rates. Borrower income influenced interest rates mostly through the impact on loan sizes: richer borrowers received larger loans and larger loans were associated with lower loan rates. The results are consistent with the influence of economies of scale on lending and differences in risk between large and small borrowers.

Role of Microcredit in Improving the Food Security Status of the Rural Poor Women: Evidence from Bangladesh

Purpose-The prime objective of this study was to assess the impact of microcredit on the household food consumption expenditure of the rural poor women in Bangladesh. Design/methodology/approach-Primary data was collected from the landless, marginal and small borrowers from Gazipur and Mymensingh districts of Bangladesh. The Simple Random Sampling (SRS) technique was used to select the samples. The Propensity Score Matching (PSM) technique was used to assess the impact of microcredit on the household food consumption expenditure. Binary logistic regression was used to assess the opinions of the borrowers about the role of microcredit in enhancing their food security status. Findings-This study showed that microcredit intervention made a significant contribution to increase the household food consumption expenditure of the borrowers. Originality/value- This study helps in formulation and smooth implementation of the food security programs for the rural poor women in developing countries. Keywords: microcredit, food security, poverty, women.

Relationship Among Financial Literacy, Attitude and Behaviour

This study measures relationship among financial literacy, attitude and behaviour. Financial literacy has two attributes, i.e. financial knowledge and skill. Financial attitude is a way of thinking, belief and perception of individuals on personal finance. Financial behaviour is an act of using financial resources for financial independence and well-being. Therefore, measuring the relationship among financial literacy, attitude and behaviour is an important research priority. The study explores the relationship and some factors that contribute to financial behaviours. Using the framework of the theory of planned behaviour, this study interprets its findings. The theory asserts that human behaviours are affected by knowledge and attitude. In this study, a survey was conducted among 393 small borrowers to collect data on financial literacy, attitude and behaviours from four districts of Nepal. Kruskal-Wallis and Chi-Square tests were used to measure the relationships among the variables. The study finds that financial literacy and attitude have significant relationships with the financial behaviours of small borrowers. However, several other factors also affect the behaviours. The study concludes that proper financial education is necessary to change financial literacy and attitude to contribute to small borrowers' financial behaviours. Similarly, the study implies that the government, central bank, and financial service providers are responsible for providing proper and basic financial education to improve financial literacy and thereby change financial behaviours.

Blockchain Use Cases Revisited: Micro-Lending Solutions for Retail Banking and Financial Inclusion

Abstract While blockchain technology is commonly considered potentially disruptive in various regards, there is a lack of understanding where and how blockchain technology is effectively applicable and where it has remarkable practical effects[1]. Against this background, we present and discuss a case study at length on the impact of this technology in the concrete setting of small short-term loans in retail banking. We propose to banks a robust and scalable blockchain technology with proof of stake and limited energy consumption used to streamline their processes, resulting in lower transaction and administration costs. This is made possible by smart contracts. Thereby, we facilitate small scale lending at high frequencies and short-term duration as well as an easier and more efficient way to connect small borrowers and lenders.

Small borrowers’ indebtedness & repayment of loans in the district of Darjeeling, India

Small borrowers’ indebtedness & repayment of loans in the district of Darjeeling, India

The impacts of fintech on small business borrowing

Consolidation in banking raise concerns about exclusion and predatory practices in small-business lending. Fintech lenders, largely unregulated credit providers with lending decisions and loan terms determined primarily by algorithm, have rapidly increased their lending to small businesses. I analyze loan-level data on consumer and small business loans from Fintech lenders and a comparison sample of small-business loans from regulated bank lenders. Fintech small-business loans charge average annual interest rates 3 percentage points higher than consumer loans from the same lender and 4 to 7 percentage points higher than small business loans from regulated banking entities. The large interest-rate premium points to the need for regulatory clarity and additional supervision to protect this crucial market segment from predatory non-bank lenders.

Supporting Small Borrowers: ABS Markets and the TALF

On March 23, the Federal Reserve established the Term Asset-Backed Securities Loan Facility (TALF) to support consumer and small business lending.

Social collateral, soft information and online peer-to-peer lending: A theoretical model

Traditional credit markets have been criticized as inefficient in allocating credits to borrowers. Powered by advanced Internet technology, online Peer-to-Peer (P2P) lending has emerged as an attractive alternative, especially for small borrowers who have limited assets and are in need of funds urgently. Although several empirical studies have examined factors influencing the micro-level lending outcome, there is a lack of understanding on the overall business model of P2P lending, especially its screening mechanism, and how it helps address the deficiency of the traditional credit market. This paper fills this void. First, we develop a theoretical model incorporating two unique features of P2P lending (soft information and social collateral) and show that in P2P, low-risk borrowers could force high-risk ones off the market under very general conditions. As a result, P2P complements traditional credit markets by serving the unserved (low-risk borrowers with little assets) in the traditional credit markets. Second, we further identify the critical operational settings for P2P success, and the impacts of these settings on borrowers’ welfare. Overall, our model and analyses not only contribute to the literature by showing analytically that P2P and the traditional credit markets are complementary, but also provide practical guidance to P2P platform managers regarding their platform design to help reshape business strategies and enhance business opportunities.

Bank lending technologies and credit availability in Europe: What can we learn from the crisis?

Using a unique sample of European manufacturing firms, we empirically investigate how bank lending technologies nd soft information adoption affected firms’ credit availability during the 2007–2009 financial crisis. Estimation results indicate that transactional lending technologies increased firms’ credit rationing, whereas soft information mitigated asymmetric information problems and improved firms’ access to credit. By looking at the combined effect of bank lending technologies and soft information, we also provide evidence about the complementarity between transactional lending techniques and soft information adoption. When soft information was incorporated in transactional lending technologies firms’ credit rationing significantly reduced. This result is especially strong for small borrowing firms and for companies matching with large financial institutions.

Efficiency of thrift agents of small urban borrowers: the case of scheduled urban cooperative banks (SUCBs) in India

Since their inception, cooperative banks in India have played a pivotal role in meeting the credit requirements of the unbanked and under-banked segments of the economy. This paper examines the effect of these reform measures introduced by Reserve Bank of India (RBI) in 2004-2005 on the efficiency of 50 scheduled urban cooperative banks (SUCBs). Data envelopment analysis (DEA) is employed to study the efficiency for the period 2003-2004 to 2013-2014. A trend of gradual decrease in efficiency in SUCBs is being observed over the years. The present study also examines the correlation between size and efficiency and finds that there is no significant correlation between the two. Moreover, the correlation is negative. The authors are of the opinion that the central bank should chart out a road map for efficient SUCBs Vasavi Co-operative Urban Bank Ltd. and Zoroastrian Co-op Bank Ltd.