Vive la Différence: Social Banks and Reciprocity in the Credit Market
- 1.4k Downloads
Social banks are financial intermediaries paying attention to non-economic (i.e., social, ethical, and environmental) criteria. To investigate the behavior of social banks on the credit market, this paper proposes both theory and empirics. Our theoretical model rationalizes the idea that reciprocity can generate better repayment performances. Based on a unique hand-collected dataset released by a French social bank, our empirical results are twofold. First, we show that the bank charges below-market interest rates for social projects. Second, regardless of their creditworthiness, motivated borrowers respond to advantageous credit terms by significantly lowering their probability of default. We interpret this outcome as the first evidence of reciprocity in the credit market.
KeywordsSocial bank Reciprocity Social identity
The authors thank Yiorgos Alexopoulos, Francesca Barigozzi, Régis Blazy, Carlo Borzaga, Damien Brousolle, Isabelle Cadoret, Anastasia Cozarenco, Jacques Defourny, Joeffrey Drouard, Silvio Goglio, Marek Hudon, Marc Jegers, Panu Kalmi, Georg Kirchsteiger, Philipp Koziol, Marc Labie, Neil McHugh, Fabien Moizeau, Jonathan Morduch, Tomasso Oliveiro, Anaïs Périlleux, Jose Luis Retolaza, Michael Roberts, Leire San-Jose, Jessica Schicks, Hubert Tchakoute Tchuigoua, Piero Tedeschi, Gregory Udell, Olaf Weber, Laurent Weill, the participants at the CERMi Seminar, ULB (May 2012), the “Cooperative Finance and Sustainable Development” Conference at the University of Trento (June 2012), the “Frontiers of Finance” Workshop at the Paris Panthéon Sorbonne University (October 2012), the Workshop on SME Finance at the University of Strasbourg (April 2013), the Third European Research Conference on Microfinance at the University of Agder (June 2013), the “Finance and Society” Workshop at BEM/KEDGE Business School (June 2013), the EMES Conference in Liège (July 2013), as well as an anonymous referee for helpful comments and discussions. This research has been carried out in the framework of an “Interuniversity Attraction Pole” on social enterprise, funded by the Belgian Science Policy Office.
- Adbulkardiroglu, A., & Bagwell, K. (2013). Trust, reciprocity, and favors in cooperative relationships. American Economic Journal: Microeconomics, 5, 213–259.Google Scholar
- Allet, M. & Hudon, M. (2013). Green microfinance. Characteristics of microfinance institutions involved in environmental management. CEB Working Paper No. 13/005. Université Libre de Bruxelles.Google Scholar
- Armendariz, B., & Morduch, J. (2010). The economics of microfinance (2nd ed.). Cambridge, MA: MIT Press.Google Scholar
- Banque Populaire de l’Ouest. (2010). Annual report.Google Scholar
- Barigozzi, F., & P. Tedeschi. (2011). Credit markets with ethical banks and motivated borrowers. Working Paper DSE No 786. University of Bologna.Google Scholar
- Basel Committee on Banking Supervision. (2001). The new basel capital accord. Consultative Document.Google Scholar
- Brown, M., Fehr, E., & Zehnder, C. (2009). Reputation: A microfoundation of contract enforcement and price rigidity. Economic Journal, 111, 333–353.Google Scholar
- Cowan, C. D., & Cowan A. M. (2006). A survey based assessment of financial institution use of credit scoring for small business lending. Office of Advocacy, US Small Business Administration.Google Scholar
- Crédit Agricole Ille-et-Vilaine. (2010). Annual Report.Google Scholar
- Crédit Mutuel Arkéa (2011). Annual report.Google Scholar
- Defourny, J. (2001). From third sector to social enterprise. In C. Borzaga & J. Defourny (Eds.), The emergence of social enterprise (pp. 1–18). London: Routledge.Google Scholar
- Fehr, E., & Schmidt, K. (2003). Theories of fairness and reciprocity—evidence and economic applications. In M. Dewatripont, Hansen, L., & S. Turnovsky (Eds.), Advances in economics and econometrics—8th World Congress, Econometric Society Monographs. Cambridge: Cambridge University Press.Google Scholar
- Fehr, E., & Zehnder, C. (2006). Reputation and credit market formation. FINRISK Working Paper, University of Zurich.Google Scholar
- Ferri, G., Kalmi, P., & Kerola, E. (2010). Organizational structure and performance in European banks: A reassessment. Paper prepared for the EURICSE Conference “Financial Co-operative Approaches to Local Development through Sustainable Innovation”.Google Scholar
- GABV (Global Alliance for Banking on Value). (2012). Full report. http://www.gabv.org/wp-content/uploads/Full-Report-GABV-v9d.pdf.
- Global Report Initiative. (2011). Sustainability reporting guidelines, version 3.1. www.globalreporting.org.
- Gouteroux, C. (2006). Le système bancaire et financier français en 2005. Bulletin de la Banque de France, 151, 75–85.Google Scholar
- Gutiérrez-Nieto, B., Serrano-Cinca, C., & Camón-Cala, J. (2011). A credit score system for socially responsible lending. CEB Working Paper No 11/028. Université Libre de Bruxelles.Google Scholar
- Hudon, M. (2007). Fair interest rates when lending to the poor. Ethics and Economics, 5, 1–8.Google Scholar
- La Nef. (2001, 2002, 2003, 2004, 2006, 2010). Annual reports.Google Scholar
- Ory, J. -N., Jaeger, M., & Gurtner, E. (2006). La banque à forme coopérative peut-elle soutenir durablement la compétition avec la banque SA? Finance Contrôle Stratégie, 9, 121–157.Google Scholar
- Rabin, M. (1993). Incorporating fairness into game theory and economics. American Economic Review, 83, 1281–1302.Google Scholar
- Stiglitz, J., & Weiss, A. (1981). Credit rationing in markets with imperfect information. American Economic Review, 71, 393–410.Google Scholar
- Weber, O., & Remer, S. (2011). Social banks and the future of sustainable finance. London: Routledge.Google Scholar