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Credit Capital, Employment and Poverty
Abstract
CREDIT CAPITAL, EMPLOYMENT AND POVERTY:
A Sri Lankan Case Study
ABSTRACT
Purpose: This research paper seeks to show how poverty and certain financing decisions are mutually reinforcing and co-integrated and, why it is happening? The paper also attempts to fill a gap in the literature pertaining to the role of credit weapon and its co-integration with poverty in a country.
Method: An exploratory study design is applied within case study research methodology using critical theory approach. The data collected by interviews and observations are complemented with documentary analysis and post-research events. These cases are from one private bank in Sri Lanka. Anonymity was necessary to protect the real cases therefore, some important background information had to be eliminated
Results: The research shows that the powerful social class, which controls financial capital in Sri Lanka, follow preferential financing policies under the façade of nationalism or patriotism and social responsibility, to protect and strengthen their own socio-economic power base, while neglecting credit applications of potential entrepreneurs from powerless class. Therefore, opportunities are lost to the society/country as a whole, so the poor remains poor while powerful class acquires more power with preferencial credit capital resulting that poverty in the society and preferential lending processes are mutually reinforcing.
Conclusions: The paper has important implications for policy makers and promoters of Micro, Small and Medium size Enterprises. The research findings indicate the need to place an emphasis on some radical structural changes in the financial capital mobility system to promote enterprises and employment generation to eradicate poverty in Sri Lanka and beyond.
Keywords: Credit Capital, SMEs, Poverty, Marxism, Sri Lanka.
JEL classification Code: O160 Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
... According to Marxist theory, class-consciousness is an awareness of a social class and economic rank and their class interests, it enables members of that social class to come together (Borland, 2008) and therefore, economically powerful social class would act together for mutual benefits. This Marxist premise 'class consciousnesses' can explain the question 'why' these powerful credit applicants were accommodated favourably (Saliya, 2019a;2019b). ...
... Source:Saliya, 2009Saliya, , 2019aSaliya, , 2019bSaliya & Hooper, 2020 International Journal of KIU, 2021 ...
This article demonstrates, with real world examples, the holistic approach to case study research as a concise practical guide for management research students. It attempts to encapsulate the basic components of qualitative case study research in management studies, with special emphasis on how to set a philosophical framework, articulate research problems and theorise research results. These components of research are identified, classified, and arranged into seven pillars (7Ps) namely; Paradigm, Perspective, Purpose, Plot, Practice, Procedures, and Persuasion. Instead of following the typical sequential execution of a chain of tasks, it is continuously intermingled amongst processes by revising/redoing them to ensure more credible results and produce cogent arguments. This paper shows how to align the research context with philosophical issues (ontological and epistemological paradigm); articulate research problems and choose a methodology; theorise research findings using classical reasoning methods of abduction, deduction, and induction and; expand the theorisation beyond the original research problem. This framework would be useful to research students to place themselves in appropriate ontological and epistemological stances, eliminate doubts, enhance clarity and sharpen the focus towards plausible conclusions.
... It's worth noting that numerous of these projects, although critical for development, have encountered inancial non-viability and economic infeasibility, as they do not generate suf icient revenue (cash) to service the loans that facilitated their realization. Consequently, these undertakings have faced challenges in terms of inancial sustainability (Saliya, 2019). ...
The Sri Lankan economic crisis of recent years has drawn signi icant attention from scholars, institutions, and policymakers alike, prompting an in-depth analysis of its root causes and implications. This paper employs a comprehensive approach to dissect the crisis, drawing from a myriad of sources, including academic works, governmental reports, and the insights of renowned experts in the ield. The analysis categorizes the indings into eight key dimensions that structure the understanding of the crisis. These dimensions encompass policy initiatives, debt composition, political factors, foreign exchange challenges, resistance to IMF assistance, monetary policies, crisis management, and governance-related issues, including corruption and human rights concerns. The paper underscores the critical lessons for the global economy that emerge from Sri Lanka's experience. It highlights the signi icance of maintaining robust central bank reserves as a buffer against tightening global inancial conditions. The crisis also raises concerns of a broader emerging market debt crisis, with a substantial proportion of emerging economies at risk of debt distress. Additionally, the paper examines the complexities of sovereign debt restructuring when a major creditor like China is involved, demonstrating the intricate negotiation dynamics in such scenarios. The analysis serves as a valuable resource for policymakers, economists, and scholars seeking to better understand the intricacies of economic crises in emerging markets and the lessons that can be drawn from Sri Lanka's experience.
... It's worth noting that numerous of these projects, although critical for development, have encountered financial non-viability and economic infeasibility, as they do not generate sufficient revenue (cash) to service the loans that facilitated their realization. Consequently, these undertakings have faced challenges in terms of financial sustainability (Saliya, 2019). ...
The Sri Lankan economic crisis of recent years has drawn significant attention from scholars, institutions, and policymakers alike, prompting an in-depth analysis of its root causes and implications. This paper employs a comprehensive approach to dissect the crisis, drawing from a myriad of sources, including academic works, governmental reports, and the insights of renowned experts in the field. The analysis categorizes the findings into eight key dimensions that structure the understanding of the crisis. These dimensions encompass policy initiatives, debt composition, political factors, foreign exchange challenges, resistance to IMF assistance, monetary policies, crisis management, and governance-related issues, including corruption and human rights concerns. The paper underscores the critical lessons for the global economy that emerge from Sri Lanka's experience. It highlights the significance of maintaining robust central bank reserves as a buffer against tightening global financial conditions. The crisis also raises concerns of a broader emerging market debt crisis, with a substantial proportion of emerging economies at risk of debt distress. Additionally, the paper examines the complexities of sovereign debt restructuring when a major creditor like China is involved, demonstrating the intricate negotiation dynamics in such scenarios. The analysis serves as a valuable resource for policymakers, economists, and scholars seeking to better understand the intricacies of economic crises in emerging markets and the lessons that can be drawn from Sri Lanka's experience.
... By complying with these guidelines, companies demonstrate their commitment to meeting industry standards and regulations (Saliya, . 5. Risk Management: Independent directors' focus on risk assessment and mitigation can help companies identify and address potential financial risks promptly. This proactive approach safeguards the company against potential crises and enhances long-term sustainability (Saliya, 2019;Saliya2020). ...
In contemporary corporate governance, the role of independent directors within audit committees is gaining prominence. This transformation is driven by the imperative to uphold transparency, accountability, and shareholder interests. This paper explores the factors underpinning this shift, the benefits it yields for corporations and stakeholders, and the overarching implications for corporate governance. The Sarbanes-Oxley Act (SOX) has amplified the responsibilities of boards of directors and audit committees, leading to a growing demand for professional directors who can dedicate themselves solely to board duties. The study delves into the relationship between professional directors within audit committees and their ability to enhance monitoring capabilities, utilizing unexplained bad debt expenses as an indicator of accounts receivable quality. Results reveal that companies with a higher proportion of professional directors, particularly those with accounting backgrounds, exhibit lower levels of unexplained bad debt expenses, signifying improved accounts receivable quality. Independent directors' inclusion in key roles such as the audit committee is aimed at mitigating conflicts of interest and safeguarding the integrity of financial reporting processes. Institutional investors, with significant stakes in numerous companies, are increasingly advocating for the appointment of independent directors to lead audit committees. These directors, often with backgrounds as university professors, bring critical thinking, objectivity, and expertise in evaluating proposals and assessing risks to the table, fostering transparency and ethical practices.
... With regards to Sri Lanka, many studies have been conducted on financial mismanagements, especially on credit management by banks, at corporate level (see Saliya, 2010;Saliya and Jayasinghe, 2016a;2016b;Saliya and Yahampath, 2016;Saliya, 2019;Saliya and Hooper, 2020) but country level studies are rare. Therefore, this study investigates the nature of the financial crisis that Sri Lanka is undergoing and, attempts to explore the impact of certain political and/or institutional factors on the crisis. ...
This study analyzes the financial crisis faced by Sri Lanka and provides insight into the impact of four independent variables, namely political stability, government effectiveness, regulatory quality, and rule of law on external debts. The data was obtained from the World Bank database and the Central Bank of Sri Lanka, and the regression was conducted using an MS Excel spreadsheet. The article regression analysis conducted with one-year lag to capture the lag effect of independent variables on external debts. The author then discussed the results with political figures and scholars in the field, through over 30 discussions conducted both in-person and over the phone. The statistical results indicate a strong association between the independent variables and external debts, with a high proportion of variance explained. The study highlights the positive impact of political stability and government effectiveness and the negative impact of regulatory quality and rule of law on external debts. However, the study has limitations, including the reliance on a limited number of expert interviews and the focus on the case of Sri Lanka. The study emphasizes the need for continued research into the complex factors contributing to external debt and economic crises and the importance of considering different sets of independent variables when formulating policy. The findings of this study could be useful for policymakers and politicians in managing external debt crises
... Although credit is an important tool to provide necessary capital for investment, lack of accessibility, eligibility, and availability of traditional credit sources preclude the poor from developing micro capital. In addition, the poor lack psychosocial and organizational resources including efficacious attitudes and beliefs, mutual trust, institutional bases required for the receipt of credit, accumulation of capital, and viable investments (Saliya, 2020a;2019;2020b). Thus, an effective strategy for alleviating poverty should intertwine financial intermediation to provide credit to the poor and social intermediation to enhance psychosocial and organizational resources. ...
... There is a widely accepted consensus that the financial sector is playing a critical role in facilitating economic growth and poverty reduction with or without state intervention (Saliya, 2016a;2016b;2016c;2019a;2019b;2020). But which sector (micro, SME or large) contributes to what extent is not discussed in these studies. ...
... According to scholars of behavioural sciences such as social-psychology (for example : Barry, 2001;Cialdini, 1993;Kipnis, 2001), sociology (for example: Molm, Schaefer, & Collett, 2007;Pearce II & Robinson Jr, 1987;Peay & Dyer Jr, 1989;Saliya, 2017;Saliya, 2018) decision makers are influenced by symbolic gains and feelings such as achievement, being powerful or successful, and even by benefits of reciprocity. Molm, Scaefer and Collett argue that "behavioral preferences are governed primarily by the instrumental value of exchange, while sentiments of trust, affective regard, and solidarity are strongly influenced by the symbolic value of constant reciprocity" (2007, p. 199). ...
This research seeks to explore and show how and why the powerful bank owners disregard normal banking practices in credit evaluation and expose banks for huge credit risk and become sources rather than managers of risk. This research report shows how and why the corporate board of a private bank in Sri Lanka finds loopholes to escape from, or/and simply violate certain regulatory requirements and statutory directives that are in place to minimize risks and strengthen stability. The methodology used in this research is ethnographic case study research methodology using critical theory approach. The researcher was unable to find related research in Sri Lanka, although this likely increased the originality of this research topic, it also prevented the researcher building on, and comparing this research findings with previous research findings regarding this research topic. The empirical research findings show how the powerful bank owners misuse or abuse the legitimate authority of their corporate boards and approve credit facilities based on 'trust' under the façades such as social responsibility and patriotism. Such decisions expose financial institutions not only to huge credit risk but also to risks of loosing reputation in trustworthiness/ reliability and even creating a bad image on stability, especially to banks which are supposed to be the guardians or trustees of public funds/deposits. Based on my theoretical analysis and interpretation I argue that they make such decisions to protect and strengthen their own socioeconomic power base. The paper has important implications for finance regulators and bank supervisors in Sri Lanka and beyond especially in the Third World countries. Also the paper attempts to fill a gap in the literature pertaining to the motives, mechanisms and outcomes of certain credit decisions made by corporate boards of banks with regards to risk management.
... Those manuals are regularly updated, especially for delegated authority levels, in keeping with changes in hierarchical positions of decision-makers and technological advancement. However, Sri Lankan banking culture, which is heavily influenced by traditional arbitrary methods used in the society in general, is known as too lenient towards rule breakers due to corruption and favouritisms (Saliya, 2019;Saliya and Jayasinghe, 2016b). To reap the benefits of proper systems, they should not only be clearly defined with duties and responsibilities towards its clients, owners and finally the community, but they should also be effectively monitored with appropriate rewards, punishments and corrective actions. ...
Purpose
The purpose of this paper is to broaden understanding as to how certain social/personal dynamics influence credit decisions in Sri Lanka, elucidating them through a taxonomy and a conceptual typological matrix.
Design/methodology/approach
This research is an exploratory case study. The primary data collection methods are interviews and reconstruction of experiences. The data are complemented by documentary analysis and post-research events.
Findings
The research findings propose that credit officers and customers are influenced by six dynamics under three dimensions: the evaluation procedures (systematic/formal or heuristics); the relationship between customers and bank officers (personal or role relationship); and justification of credit (rational or irrational/situational). Based on the above results, a taxonomy of influential tactics and personality traits and a typological matrix are developed to classify credit decision-makers, who are labelled as BOSS, ROBOT, REBEL and BUDDY.
Research limitations/implications
These case studies are from a private bank in Sri Lanka, hence it could affect the generalization of findings. Therefore, researchers are encouraged to investigate the plausibility of the findings in diverse cultural backgrounds.
Practical implications
Credit decision-makers and credit applicants could make use of these typological matrix and the taxonomy to understand each other and employ more influential approaches and appropriate influential techniques to make effective credit decisions. It also provides more insight into understanding the nature of credit-decisions and decision-makers and, provokes further research.
Originality/value
To the author’s best knowledge, this is the first study in Sri Lanka that considers certain influencing factors of credit decision-making and proposes a conceptual typology to understand those factors.
What happens in this method is that the whole thing rises into a picture. It helps the researcher to present the idea clearly and to make it clearer to the reader. This is a very old methodology. Such offerings include the swastika of ancient Indian religions, the Dharma Chakra, which condenses the teachings of the Buddha, and the cross of Christianity.
The Greek word ‘ethno’ refers to a people, race or cultural group. Ethnography is a branch of anthropology that systematically studies individual cultures. Ethnography explores cultural phenomena from the subject perspective of the study, and it involves exploring a cultural group to understand, discover, describe, and interpret a way of life from the perspective of its participants.
Often, the researcher’s insight and experience direct the researcher towards a problem that needs to be researched. However, figuring out a problem depends on the researcher’s ontological and epistemological stance; therefore, chosen paradigm and theoretical perspective provide the necessary guidance to articulate a research problem.
The dilemma that Sri Lankan economy is experiencing has only one root-cause. That's mismanagement. Proper management is known as utilizing economic resources efficiently and effectively, together known as maximizing productivity. Economic resources mean scarce resources. The scarceness or limited supply of resources can vary from time to time, from country to country or even from society to society. For example, water was not considered scarce a few decades ago, no one imagined a market for bottled water especially in countries like Sri Lanka where water was abundant. Efficiency is widely known as "doing things right"; minimum wastage and least consumption of input resources including time etc. While effectiveness denotes "doing the right things"; timely decisions and feasible/profitable selection of projects etc (Ref. Peter Drucker). Therefore, mismanagement could occur either by not doing the right-things or because of following wrong methods/procedures, even though the strategies/plans/tasks/selections are right. In the worst-case scenario, mismanagement caused by committing both the faults; doing unproductive wrong-things in wrong-ways, sometimes using fraudulent methods, similar to what happened and is happening in Sri Lanka today. Some people argue these wrong-things and wrong-ways have been happening since we got independence from the colonial masters implying that before the independence the management of our economy was better. On the other hand, they complain that colonial masters did nothing good for us, suggesting that winning independence 74 years ago in 1948 has nothing to do with the current crisis. However, statistics show, and many representations have been made by experts to demonstrate that Sri Lanka was doing very well before 1948, under
This research paper shows that credit mechanisms sometimes thrive towards strengthening socioeconomic powerbase of the capitalist class and form a mutually reinforcing function, which, from a Marxian point of view, could intensify concentration of wealth aggravating income/wealth inequality in society. We applied a critical ethnographical approach using the case study research design. Empirical data was extracted iteratively from participants and presented as thick-descriptive case studies. We argue that certain credit decisions enhance the socioeconomic power base of influential individuals, making them richer and powerful while ordinary credit applicants are discriminated against by strict application of credit evaluation rules. These observations bolster the Marxian claim that credit systems work as an exploitation mechanism towards concentration of wealth. These findings provide insight for policy formulators to design more productive financial capital mobility systems with the help of state-intervention to minimize credit-oriented exploitation and growing inequality.
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