Over the long history of lending by banks, various loan grouping systems have been created based on certain criteria with the aim of improving the efficiency of credit operations management. Accordingly, a client can receive a loan in various forms depending on the situation and conditions.
The evolution of credit theories
The theoretical justification of loans branches into two main areas. This classification is represented by naturalistic and capital-creating theories.
Naturalistic theory
The beginning of the naturalistic theory of credit was laid by A. Smith and D. Ricardo, who considered loans as a form of turnover of productive capital. The main aspects of this theory include the following points:
- In the role of the object of the loan are natural material goods.
- Loan capital is identified with productive capital.
- Banks act as intermediaries in the movement of capital, and a passive role is assigned to credit, ensuring the circulation of productive capital.
- Credit as an independent financial unit does not form real value.
- Needs arising in the process of capital turnover limit the scope of credit development.
- Profit generated as a result of the turnover of productive capital is a source of loan interest - income from invested capital.
Capital theory
In the middle of the XIX century, the leading position in the economy was taken by the capital-creating theory of credit, characterized by the following ideas:
- The reproduction process does not affect credit.
- The main factor in the development of the economy is credit.
- Banks are structures engaged in the "production" of loans.
- Credit is productive capital, since it acts as a source of profit.
The ideas of this theory of credit were formulated by the Scottish financier and economist J. Law and the English economist G. MacLeod. The German banker A. Hahn, the English economists J. M. Keynes and R. Howry, the American economist E. Hansen at the beginning of the 20th century continued to develop capital-based credit theory in their works. Scientists have introduced the following points into the methodology of this theory:
- The leading role in the economy is given to banks.
- Active operations are the basis of banking.
- A loan acts as a source of bank capital because it creates deposits.
- Credit is a factor of economic growth and expanded production, since it is a source of capital.
Money capital, which is released in the process of turnover of commercial and industrial capital, and financial accumulations formed in the process of movement of funds of the population together form loan capital. Lending is possible only on the basis of the listed resources. Credit can become an inflationary factor limiting economic growth.
Credit boundaries
In the economy, the scope of credit transactions is limited. According to the general theory of money and credit, the boundaries of bank and commercial credit are distinguished.
The boundaries of a commercial loan
What determines the boundaries of a commercial loan? This indicator is due to the manifestation of the following criteria:
- The purposes of using the loan are servicing the circulation and production of goods and products, that is, satisfying the need for working capital.
- Direction of use - the parties to such a loan are characterized by economic relations.
- A time limit for a commercial loan that fits in the normal production cycle.
- The possibility of expanding the loan on the basis of bill circulation does not cancel the restrictions on the amount.
Bank loan limits
According to the theory of finance and credit, the boundaries of a bank loan are determined by the following criteria:
- The resource base of each loan is based on liabilities, on which the maximum loan amount depends.
- The loan portfolio of a banking organization must comply with the principles of liquidity, which is why lending to certain categories of borrowers is not possible. The system of economic standards is responsible for such regulation.
- The needs of economic turnover limit the maximum need for loans.
Classification of Scientific Schools Researching Loans
The fundamental factor in a systematic study of credit theories is the classification of scientific schools that are not tied to a specific educational and pedagogical activity. Four main scientific schools are distinguished, taking into account the credit paradigm - a specific model of posing problems and their solutions, affecting the socio-economic importance of credit:
- Nihilistic. Credit decomposes the socio-economic system, having a negative impact on it.
- Capital-creating. Credit has a positive impact on the socio-economic system, providing unlimited and continuous economic growth.
- Naturalistic or neutral. Credit is neutral in relation to the system, as it redistributes the resources already available.
- Investment and financial. According to this theory, credit is an integral part of the formation of the flow of investment financing in the economic system.
Modern theories
In the theory of credit before the economic crisis of 1929-1933, the following ideas were considered basic:
- Credit expansion of the banking system. It is carried out by lowering the cost of credit, simplifying its conditions, provokes and allows you to support the rise of industry.
- The money supply in the state limits the credit expansion of banks in the conditions of exchange of banknotes for gold.
The practice of the cyclical development of a market economy went against the listed provisions, since the inflationary nature of limitless lending negatively affects the crisis in specific phases of the cycle, exacerbating it.
The provisions of the capital-creating theory of credit in modern conditions play the role of the methodological basis of the concepts of monetary regulation of the economy - monetarism and neo-Keynesianism, which imply credit expansion and credit restriction as anti-crisis measures. On the basis of capital theory, the concept of a credit, or deposit, multiplier has been developed, which is widely used in the financial and credit policy of central banks. A reflection of real banking practice and the possibility of forming a number of deposits on the basis of a similar amount during a credit operation is the model of animated deposits.
Western economists in their research work currently do not focus on the characteristics of credit relations, but on the features of their functioning in practice, respectively, their activity is of an applied nature.
Until the 90s of the 20th century, the only Karl Marx theory of credit was adopted in the domestic economy, based on the following principles:
- Actual capital is formed only in the production process, but is not created by credit.
- The monetary accumulations of citizens and the state, as well as temporarily free and pre-mobilized money capitals act as sources of loan capital.
- The growth rate of real capital is inferior to the growth rate of loan capital. This is due to increased revenues of the state and the personal sector, the constant development of the credit system and other factors.
- In the lending process, banks generate cash capital by providing customers with a loan by opening deposits without first collecting funds. This is required to ensure the turnover of trade and industrial capital. The needs of the process of restoring real capital limit the ability of banking organizations to form deposits and accumulate cash capital.
The studies mentioned above in the works of Western and domestic economists, affecting the theory of credit, today are mostly applied in nature.