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Introduction
Despite the growing literature that examines the relationships between financial systems, bank credit and economic growth, there are few empirical studies that investigate how certain cultural, social and personal dynamics influence credit decisions. This research paper investigates certain credit decisions made in Sri Lanka and attempts to explain the methods used by the decision-makers and the motives behind such decisions, to broaden understanding as to how certain credit decisions are made and to explore how and why credit officers (COs) make such decisions and the motives behind the decisions.
Typologies are “organised systems of types” that enable us to better comprehend, understand and explain complex social realities (Kluge, 2000). Therefore, from the research findings, a taxonomy and a typological matrix are presented to encompass the types of processes of decision-making, the types of relationships, rationality of decisions and the personality traits using six major dynamics under three dimensions, namely the procedures followed for credit evaluation (systematic/formal, policy-based approach, or heuristic, the rule-of-thumb approach); the type of relationship between credit seekers and credit decision-makers (personal or role relationship); and the justification of credit (rational or irrational/situational). These findings provide guidance to broaden understandings as to how certain credit decisions are made and why credit managers make such decisions. Table I shows these six dynamics of credit decision-making.
The findings are also useful to both the credit evaluating officers (lenders and credit decision-makers) and credit applicants (borrowers and decision-seekers) to understand each other’s positions and employ more influential approaches and appropriate techniques to get credit applications approved. This study emphasizes the importance of “influencing tactics” and “personality traits” in credit decision-making. Also, it can provide more insight into understanding the reasons why COs discriminate against or favour one application over another.
Significance of the study and its originality
The significance of this study is fourfold: first, it critically analyses and documents the prevailing credit culture and credit evaluating systems in practice set against the rules given in the “credit policy manuals” of banks, popularly known as the 5Cs of credit evaluation: character, capacity, capital, collateral and condition. Second, the research findings and interpretation of results contribute to the literature by integrating “influencing tactics” presented in Barry’s Taxonomy of Expectancy with the Big Five personality trait taxonomy...