Essay on New Forms Of Credit Creation
New Forms of Credit Creation
Credit creation, the process of creating the facility of being able to obtain goods or services before payment, based on the trust that the payments will be made in the future, has grabbed major attention after the 2008 financial crisis. Insufficient allocation of credits to the small and medium sized enterprises, and local economies gave birth to different form of non-bank credit creation.
Local/Alternative currency loans:
Local currencies like USA’s Berkshares, UK’s Bristol Pound and Germany’s Chemguear are the examples of emerging local currencies being used as an alternative means of exchange. With making further advancements in this approach, a new form of credit distribution system evolved called Community Development Financial Institutions (CDFIs), which provides financial products nad services, such as mortgage financing for homebuyers and non-for-profit developers, underwriting and risk capital for community facilities; technical assistance and commercial loans and investments to small, start-up and advancing businesses. It includes regulated institutions, such as community development banks and credit unions, and non-regulated institutions, such as loan and venture capital funds. IIC (Inter American Investment Corporation), member of IDB group is further planning to expand its local currency lending activities over the next few years to better fulfill its mandate of providing affordable…