Information production in credit relationships : on the role of internal ratings in commercial banking

This paper discusses the role of internal corporate ratings as a means by which commercial banks condense their informational advantage and preserve it vis-à-vis a competitive lending market. In drawing on a unique data set collected from leading universal banks in Germany, we are able to evaluate the extent to which non-public information determines corporate ratings. As a point of departure, the paper describes a sample of rating systems currently in use, and points at methodological differences between them. Relying on a probit analysis, we are able to show that the set of qualitative, or soft, factors is not simply redundant with respect to publicly available accounting data. Rather, qualitative information tends to be decisive in at least one third of cases. It tends to improve the firms' overall corporate rating. In the case of conflicting rating changes, i.e. when qualitative and quantitative rating changes have opposing signs, quantitative criteria dominate the overall rating change. Furthermore, the more restrictive the weighting scheme as part of the rating methodology is, the stronger is the impact of qualitative information on the firms' overall rating. The implications of our results underline the need to define stringent rating standards, from both a risk management and a regulatory point of view. Revised edition published in: ZEW Wirtschaftsanalysen 2001, Bd 54, Baden-Baden, Nomo

CDFIs Stepping into the Breach: An Impact Evaluation—Summary Report

This report summarizes research undertaken by the Carsey School of Public Policy to evaluate impacts of the Community Development Financial Institutions (CDFI) Fund on CDFIs and of the CDFI industry on the people and communities it serves. In summary, we find a variety of evidence indicating that CDFIs are advancing the statutory purposes of the CDFI Fund to promote economic revitalization and community development through the provision of credit, capital and financial services to underserved populations and communities in the United State

Political Economy of International Climate Finance: Navigating Decisions in PPCR and SREP

This working paper explores how countries can build their own 'climate finance readiness' by understanding their internal political economy and use that understanding to steer consensus-based decisions on climate finance investments. For climate finance to be effective, national leaders must build shared commitments. This involves considering the arguments, incentives and power dynamics at play to ensure priorities are more equitable and representative of a broader group of stakeholders. Doing so will also help to reduce the risk of implementation delays. This paper uses case studies from Bangladesh, Ethiopia and Nepal to explore how narratives and incentives within the political economy drive climate investment outcomes under the Pilot Programme for Climate Resilience (PPCR) and the Scaling up Renewable Energy Programme (SREP). It draws from broader analysis of the discourses around these investments, including 80 interviews with government; multilateral development banks (MDBs) and other stakeholders

Learning Lessons: Urban Water Supply Sector

Complementing a November 2009 guidance note that outlined risks to development effectiveness in the urban water supply sector, this brief provides relevant lessons from evaluations of Asian Development Bank programs over the last ten years. The findings warn against the sector's vulnerability to diverse institutional, organizational, operations, and project-level risks

Scaling U.S. Community Investing: The Investor Product Interface

"Community investing" is investment that seeks to deliver social benefits to low-income or marginalized communities while also generating a financial return. This report provides an overview of the U.S. Community Investing (USCI) field: the types of intermediary organizations raising investments and deploying them in underserved communities, the range of investment products that are available, and the types of investors active in the space. In so doing, this study surfaces several key barriers and opportunities for scaling private investment in the USCI space

Applying economic analysis to technical assistance projects

The author recommends using more quantitative economic analysis in appraising technical assistance loans and loan components. After giving a brief history of tecnhical assistance and the problems commonly associated with it, he describes classifications of technical assistance, proposes a new typology to be used for project appraisal, suggests methods for screening projects, and discusses different levels of economic analysis. He shows how the typology and economic analysis could be applied to 40 projects in the Europe and Central Asia region, Although some of the suggested approaches are sophisticated and demanding, much of it relies on fairly simple techniques. The author estimates that roughly 60 percent of the technical assistance in his sample was suitable for quantitative analysis. Using four case studies, he demonstrates how quantitative economic analysis could be used more frequently in the appraisal process. The author recommends that all technical assistance be classified according to the methodology suitable for its appraisal and evaluation. In cases in which little or no quantitative analysis is used, the staff officer can and should provide a justification -in which case it should still be possible to conceptualize the problem in economic terms. Essential technical assistance should be included when calculating the economic rate of return on a project. When technical assistance is excluded from this calculation, a strong justification for such assistance should be given or it should be omitted from the project. In his sample, the author estimates that about 80 percent of the technical assistance in investment projects was not essential for project implementation. In the 12 projects for which an economic rate of return was calculated in the appraisal, the technical assistance was not included in the estimate -even though 53 percent of this technical assistance was deemed necessary to the project.Decentralization,Development Economics&Aid Effectiveness,Banks&Banking Reform,Economic Theory&Research,ICT Policy and Strategies,Poverty Assessment,Banks&Banking Reform,ICT Policy and Strategies,Economic Theory&Research,Country Strategy&Performance

European experience and Ukrainian realities in the policy of financial support entrepreneurial sector

Aim/purpose – We want to provide recommendations to bridge the gap in access to financing of the entrepreneurial sector in Ukraine based on the analysis of European experience, EBF approaches, financial funds for SMEs and the current state of the credit market in Ukraine. Design/methodology/approach – We used the general scientific methods of knowledge, conceptual tenets of the theory of market economy, abstract logical analysis and synthesis, induction and deduction, historical (to determine the nature and causes of bank investment in SMEs, refine categories and terms); formalization, systems analysis (to determine factors of investment banking, institutional and legal environment); statistical, retrospective analysis. The results of surveys conducted by the EBF on the issues of support and development of SMEs are used, own research of 120 Ukrainian SMEs, which was conducted during the period from January to July 2016. The nature of the research questions was reinforced by the decision to survey only SMEs. Independent reporting (from entrepreneurs or CEOs) was used to account for both business activity and the external sources of information. Findings – Policy initiatives should primarily be developed at the national level in the field of lending to SMEs based on the European experience and Ukrainian realities; it is necessary to develop an understanding of the need for access to certain types of information; SMEs are the main providers and the most valuable source of credit information. Research implications/limitations – When using the methods of calculation creditworthiness perhaps to take into account the methods for assessing the quality of management, the image of the enterprise, ISO certificates. Originality/value/contribution – Based on the cross-country comparison of the EU and Ukraine, highlight the necessity of focusing on some legal unification of SME lending procedures for the development of a culture of sustainable entrepreneurship on the European continent

Using development-oriented equity investment as a tool for restructuring transition banking sectors

Over the past 10 years the three Baltic republics have undertaken significant restructuring of their banking sectors, supported by the World Bank through three projects: the Financial Institutions Development Project in Estonia, the Enterprise and Financial Sector Restructuring Project in Latvia, and the Enterprise and Financial Sector Project in Lithuania. These projects included a credit line, channeled through local commercial banks, to provide long-term funding and complementary technical assistance to private enterprises. In parallel, the government of Sweden injected equity into the commercial banks from Swedfund Financial Markets (SFM). The projects and the accompanying Swedfund equity were aimed at promoting sound banking systems in the three Baltic countries-by strengthening the equity in the banks and thereby expanding medium- and long-term financing. Meigas examines the role of SFM-which provides development-oriented equity investment (DEI) to Baltic banks-in the context of the World Bank programs. She examines the arguments for deploying DEI as a development vehicle by gauging its impact in the three Baltic countries on banking skills and services, on capitalization, and on shareholder structure and board membership. She draws out the role of technical assistance and compares its impact with that of DEI, and explores the possibilities offered by DEI for imposing sound corporate governance. The author also describes the necessary ingredients for successful DEI. The author's analysis shows that the Baltic projects were valuable initiatives that could in principle be replicated in other transition or developing economies whose banking sector faces serious restructuring challenges. A development-oriented equity investment, like that made by SFM, can address the important deficiencies in a banking sector that is still in a rudimentary state, lacking both capital and banking skills. SFM's most effective tool was the imposition of sound corporate governance on the institutions that received the equity injection. This approach provided a powerful supplement to the banking supervisory functions. Rather than relying on the external enforcement power of state supervision, SFM targeted internal processes to change business practices. As a result, the DEI led to improvements in the corporate culture and broader risk management and thus in the quality of banking services-not only meeting the institutional development objectives but also ensuring an adequate return on the invested capital. The potential of good corporate governance for easing the work of banking supervisors has been stressed by the Basle Committee on Banking Supervision. Thispotential is particularly valuable in countries still developing the supervisory function, and DEI, the author argues, is well suited for the task of improving corporate governance.Financial Crisis Management&Restructuring,Banks&Banking Reform,Financial Intermediation,Payment Systems&Infrastructure,International Terrorism&Counterterrorism,Banks&Banking Reform,Financial Intermediation,Financial Crisis Management&Restructuring,Housing Finance,Municipal Financial Management

Turning Brownfields into Jobfields

A handbook for practitioners and citizens on making brownfields development work