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General

Series of Doctoral seminars in social entrepreneurship – Summary for the EJEB (2) : Simon Cornée (Université de Rennes): Social banks and reciprocity in the credit market (20th March)

Doctoral School in Management Sciences, UMons, HEC-ULg & Solvay-ULB Doctoral Seminar in Social Entrepreneurship (2013)

 This seminar held in the spring semester of 2013 aimed to equip doctoral students with theoretical and methodological skills for doing research in the field of social enterprise and social entrepreneurship. The seminar traced social entrepreneurship research back to different approaches in economics, entrepreneurship and organization theory. Based on the critical analysis of theoretical and empirical articles, students got acquainted with several research avenues in the field. They then were asked to locate their own research project regarding the extant literature and to discuss their upcoming research agenda with the teachers and the other students. The 2013 edition was be organized against the background of the 4th EMES Research Conference on Social Enterprise  (Liege, 1-4 July 2013). As a way to share these efforts with the PhD community, the EJEB is launching a summary of each of the sessions included in this seminar. Each summary was written by PhDs participating in the Seminar.

Download the program of the Seminar here

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In this report, we will first give some practical information on the seminar and we will present our guest, Professor Cornée. We will then summarize the article that he wrote with Professor Szafarz. Finally, we will try to restitute the discussion between the guest and the seminar participants which occurred after the presentation.

Practical information

Number of participants: 9 PhD Students, 1 Master Student, 2 Professors of the University of Liège (Prof. Mertens & Prof. Xhauflair) and the guest.

The guest: Prof. Simon Cornée. He is an assistant professor at the University of Rennes 1 (France) and researcher at the CREM CNRS. His main research topics encompass financial intermediation, and more specifically financial cooperatives and social banking. He is also interested in the issues of governance and corporate financing in cooperatives and social enterprises. From a methodological standpoint, he pays attention to the decision processes and the organizational aspects with the aid of experimental and quantitative empirical tools. He was awarded the 2006 “Finance and Sustainable” prize delivered by the FIR-EUROSIF. In 2012, he received the prize of the best PhD dissertation granted by the ADDES.

Summary:
Vive la différence: Social bank and reciprocity in the credit market” by S. Cornée & A. Szafarz, 2012.

Social banks[1] are financial intermediaries paying attention to non-economic (i.e. social, ethical, and environmental) criteria” (Cornée and Szafarz, 2012: 2). Two other main principles underlying social banking are transparency where ethic, without being normative, is central and responsibility which can be seen as a consequence of the two first principles.  Thus, social (or ethical) banks serve community-oriented projects, social enterprises and sometimes segments rationed by conventional banks. By the ethical premium, shareholders pass the financial sacrifice on to a social premium. Social banks and cooperative banks do not completely overlap. Indeed, a social bank may not have a cooperative status (e.g. Triodos) and, on the contrary, a cooperative bank may not have social interests (e.g. RaboBank).

In Europe, since the 1980’s, the customers’ interests for social banks grow much higher than for commercial banks. To support this observation, the paper gives a comparison between social banks (SB) and commercial banks (CB) in terms of assets growth, ROE (Return On Equity), ROA (Return On Assets), Deposit/Assets and Loans/Assets. For example, the social banks’ ROE is lower than the commercial banks’ ROE because SB are more capitalized than CB. This also leads to a better stability of the SB sector.

The paper addresses three main questions: (1) how does the bank transfer the financial gift/sacrifice to the borrower, (2) how do SB select their borrowers and (3) does their lending policy have implications in terms of repayment performance?

The data[2] used were hand-collected in the French SB “La Nef” which is a financial cooperative established in 1988. Out of the 476 loans extended by the bank, there are 389 complete credit files (82%) which constitute the sample. Borrowers are mainly small businesses. The variables used to analyze the sample are: the contractual features (rate, loan size, non-collateral), the ratings (financial and social), the refinancing rate and some additional characteristics (start-up, relationship and default).

Four main results are extracted from the econometric analysis: (1) the higher the average charged interest rate, the lower the social rating, (2) the higher the social rating, the higher the amount granted by the bank, (3) there is no impact from the social rating on the level of collateralization and (4) the higher social rating, the lower the probability of default. The analysis of the modus operandi in the credit market also reveals that (5) the correlation between social rating and financial rating is not significant and that (6) the higher the social rating is, the lower the interest rate charged is. The latter means that the financial gift is effectively transferred to the borrower conditions. Some robustness tests were performed and they confirm the previous finding.

The previous results emphasis the fact that SB increases the probability of success of already viable projects (funding project only and no correlation between social and financial return) and that there is a social intensity of credit conditions (positive relation between social return and loan size, charged interest rate and no impact of social return on collateral). Furthermore, social rating and financial rating bring similar reduction in default probability. This can be mainly explained by the reciprocity phenomenon which means that a significant fraction of borrowers would honor the debt contract if they perceive the lender’s offer as fair. Here, reciprocity acts as an endogenous condition device.


[1] The authors have decided to focus their research on Europe.
[2] Collected from 2001 to 2004


Discussion

1)    According to our guest, the outcome: “The higher the social rating, the bigger the loan size granted by the bank is” is not easy to explain.

A PhD student did not fully understand our guest’s comment. According to this PhD student, the main aim of SB is to help high social rating companies. So, it seems logical that a bank would give a lot of money to this kind of companies because having a high social rating fits perfectly with the bank’s expectations.

Professor Cornée answered this question by explaining that companies with high social ratings were not necessarily the ones in large need of money.

Nevertheless, the bank would still allow loans according to this criterion. As a result, banks do not grant loans according to the company needs but according to their social rating. This is precisely this behavior which is difficult to explain.

2)    Reciprocity

One of the PhD students highlighted the fact that if there is really a reciprocity effect, the two sides of the transaction (social bank and the customer) have to be aware of this reciprocity. According to the student, the argument that the customer of the social banks will have a lower rate of default because there is a reciprocity effect is only valid if the customer is aware of the better conditions applied to him/her.

3)    Culture interpretation of reciprocity

There was also a discussion around the concept of ‘reciprocity’ itself. This concept is not a universal one and depends a lot on the culture of people.

Amelie_MernierAmélie Mernier is a PhD Student at the Center For Social Economy of the University of Liège. She is currently undertaking a PhD in Management in the framework of the Baillet Latour Chair in Social investment and philanthropy launched in December 2012 at HEC-ULg. The research fields of the Baillet Latour Chair include the analysis of foundations as enterprises with societal aims, impact measurements and philanthropists as partners for social entrepreneurs. At this early stage of her research, Amélie is working on the tax-deductible donations in Belgium as well as on the Belgian Foundation sector.
E-mail: amernier@ulg.ac.be

 

 

 

Nadège_LorquetNadège Lorquet is a PhD Student at the laboratory of new technologies, innovation and change (LENTIC) of the University of Liège (HEC). She is currently undertaking a PhD in Management. Her project focuses on emergent work relationships in the labor market. She is taking part of a large project studying flexicurity at a multilevel theoretical perspective. She is supervised by the Prof. François Pichault.
E-mail: nlorquet@ulg.ac.be

About emesphdnetwork

EMES is a research network of established university research centres and individual researchers whose goal is to gradually build up a European corpus of theoretical and empirical knowledge, pluralistic in disciplines and methodology, around “Third Sector” issues.

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