Vive la Différence: Social Banks and Reciprocity in the Credit Market
51 Pages Posted: 5 Jul 2012 Last revised: 18 May 2017
Date Written: October 10, 2013
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.
Keywords: social bank, subsidized loan, social enterprise, ethical bank, start-up
JEL Classification: G21, D63, G24, H25
Suggested Citation: Suggested Citation