Loan officers and relationship lending to SMEs

Uchida, Hirofumi; Udell, Gregory F.; Yamori, Nobuyoshi

doi:10.1016/j.jfi.2011.06.002

Cited by 204 publications

(112 citation statements)

References 56 publications

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“…The greater the loan officer's experience and the most frequent the loan officer-entrepreneur relationship, the more accurate soft information he/she will produce. Uchida, Yamori, and Udell (2012) found that the production of soft information increases with skill level of loan officer (e.g., loan officer turnover, loan officer age) and loan officer lending activities (e.g., frequency of meeting and method of contact). In recent study, loan officer turnover is introduced as a potentially better proxy of the quality of soft information produced than length of banking relationship.…”

Section: Predictive Accuracy Of Soft Information and Strength Of Lendmentioning

confidence: 99%

Evaluating the predictive accuracy of microloan officers’ subjective judgment

Baklouti¹,

Baccar²

2013

IJRSM

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The peculiarity in lending methodology in Microfinance institution characterized by unchallenged dominance of the loan officers in the decision-making prompted us to investigate the predictive accuracy of their subjective judgement. In addition, we investigate if the accuracy of this information depends on the strength of lenders-borrowers relationship.The objective of this paper is to understand the loan officer behaviour in default prediction task. Using credit file data from Tunisian Microfinance bank, we have found evidence that subjective judgment of loan officers has statistically significant predictive capability of default risk. In addition, our results suggest that novice loan officers have incorrect prediction of future default events because they are prone to different behavioral biases. Novice loan officers may overweight any information that is consistent with their existing beliefs and overestimate the precision of their own private information. However, through learning experienced loan officers have less behavior bias and more accurate feeling allowing them to make an accurate default prediction. To make correct decision in relationship lending approach, credit committee can rely on subjective judgment of experienced loan officers mainly when the latter judged the creditworthiness of frequent borrowers. As soft information is not easily and accurately transferable, Microfinance institutions have more interest to retain their experienced loan officers than their borrowers.

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Section: Predictive Accuracy Of Soft Information and Strength Of Lendmentioning

confidence: 99%

Evaluating the predictive accuracy of microloan officers’ subjective judgment

Baklouti¹,

Baccar²

2013

IJRSM

View full text Add to dashboard Cite

show abstract

“…(unverifiable) information can be collected and updated through a long-term lending relationship (Petersen and Rajan, 1994;Berger and Udell, 1995;Uchida, Udell and Yamori, 2012).…”

Section: Introductionmentioning

confidence: 99%

When Arm's Length is Too Far. Relationship Banking Over the Business Cycle

et al. 2014

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Using a novel way to identify relationship and transaction banks, we study how banks' lending techniques affect funding to SMEs over the business cycle. For 21 countries we link the lending techniques that banks use in the direct vicinity of firms to these firms' credit constraints at two contrasting points of the business cycle. We show that relationship lending alleviates credit constraints during a cyclical downturn but not during a boom period. The positive impact of relationship lending in an economic downturn is strongest for smaller and more opaque firms and in regions where the downturn is more severe.JEL codes: F36; G21; L26; O12; 016

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“…Therefore, the banks sought to encourage the SMEs to use more transparent ways of reporting their business operations, bringing them into the 'public domain' (Jackson et al, 2008), to reduce the SMEs' reliance on indigenous, tacit knowledge. The banks extensively used relationship lending where loan officers collected soft information to help inform lending decisions, and mitigate the firms' opacity (Sahar & Anis, 2016;Uchida et al, 2012). This approach was combined with transaction-based lending (based on contracts, proformas, and evidence of legal business operations).…”

Section: Case Backgroundmentioning

confidence: 99%

“…Although soft information can be more suitable for assessing SMEs, it can deteriorate over time as it passes through the bank's communication hierarchy (Uchida et al, 2012).…”

Section: Case Backgroundmentioning

confidence: 99%

SME finance and the construction of value in Rwanda

Klyton

Rutabayiro-Ngoga

2017

JSBED

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PurposeThis article explores how entrepreneurs, banks, the government and alternative lending respond to finance gaps for Small and Medium Enterprises (SME). This article considers valuation as a sociological construct where actors use different calculative devices, forming an assemblage that partly positions valuation of entrepreneurial finance as a contested and socially constructed process. Design/methodology/approachDrawing on the concept of 'calculative devices', the study articulates discursive institutional practices embedded within SME lending. This case study draws on analyses of 30 semi-structured interviews and archival data, government reports, and newspaper articles. FindingsThe study identified three triggers in Rwanda that were rooted in the informal and unincorporated nature of the SME governance structure; the lack of capacity for SME owners to manage their own projects; and normalising language around collateral requirements that marginalised the realities of SMEs; contributing to stagnation for SME finance. Practical implicationsThe research provides direction for understanding how calculative devices create new forms of valuation of entrepreneurship in developing countries, particularly when human and non-human actors come together in an assemblage. The study calls for further research to demonstrate the embedded power of valuation practices and the performance of value in entrepreneurial finance. Originality/valueThe study brings new findings to the market creation literature by extending the notion of distributive calculative agency to SME finance. The study mobilises theory to interpret how discursive institutional practices are embedded within a country's finance infrastructure, yielding unintended consequences for SME growth.

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Loan officers and relationship lending to SMEs

Cited by 204 publications

References 56 publications

Evaluating the predictive accuracy of microloan officers’ subjective judgment

Evaluating the predictive accuracy of microloan officers’ subjective judgment

When Arm's Length is Too Far. Relationship Banking Over the Business Cycle

SME finance and the construction of value in Rwanda

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