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Money and credit - Ivanov V.M.

15.2. Credit transactions

As an economic phenomenon, credit is the transfer for temporary use of tangible assets in cash or in commodity form. Moreover, credit relations are manifested in the form of specific credit transactions, the forms and conditions of which are very diverse. The essence of credit is always stable and unchanging; regardless of the specifics of the manifestation, it retains the features inherent in the economic relations underlying the loan.

As an economic category, credit is a combination of certain economic relations. Their isolation in a separate form is based on the characteristics of the subjects and objects of these relations. From these positions, credit can be characterized as the relationship between the lender and the borrower regarding the return movement of value.

Subjects in the process of reproduction are simultaneously participants in many other relationships arising from the movement of various kinds of values. The specificity of the structure of the credit relationship lies in the fact that its subjects always act as a lender and a borrower and as such possess characteristic features.

The formation of participants in the economic process as a creditor and borrower is due primarily to the development of commodity circulation and exchange relations. It is in the process of exchange that conditions are created for a temporary gap between the movement of goods and their monetary equivalent.

A creditor is a subject of a credit relationship, providing value for temporary use. The source of funds for the issuance of a loan can be either the lender's own funds or borrowed funds. The development of exchange relations and, accordingly, credit relations led at a certain stage to the concentration of creditor functions in the activities of special financial institutions - banks. Bankers personify many lenders whose temporarily available funds are accumulated by banks. Banks can lend in addition to their own and borrowed funds also issued.

In addition to banks specializing in the mobilization of temporarily available funds and providing them for temporary use, currently, enterprises, joint stock companies, private companies, insurance and investment companies, pension and investment funds, individuals, states, etc. can act as creditors. The purpose of the loan is mainly to make a profit in the form of loan interest. In this regard, the lender is interested in the effective use of the borrowed funds. In a market economy, lending takes the form of a capital loan. If the borrowed funds will be used by the borrower for unproductive purposes, lending takes the form of a money loan.

The borrower is the subject of a loan relationship, receiving a loan. Borrowers can be legal entities and individuals who lack their own funds - state-owned enterprises, joint-stock companies, private firms, banks, the state, citizens, etc. However, the mere desire to obtain a loan is not enough to participate in a credit relationship as a borrower. The borrower must provide economic and legal guarantees for the repayment of the loaned funds upon the expiration of the loan term. Such guarantees can be, for example, the provision of collateral as a security for a loan, the obligation of the guarantor (usually a large bank) to repay the loan debt in case of insolvency of the borrower, etc.

The economic role and place of the borrower in a credit transaction differ from the role and place of the lender. First of all, the borrower is not the owner of the funds lent to him, he only realizes the right to temporary possession of them.

The lender and the borrower differ in their place of functioning in the reproduction process. The lender accumulates and places free resources in the sphere of exchange in loans; the borrower uses the funds received both in the circulation process and in the production of goods.

The borrower is obliged to repay the funds taken on credit by paying a loan interest for their use. To do this, he must organize the reproduction process in such a way as to ensure the efficient use of the loan and the release of the funds necessary for its repayment within the time period established by the loan agreement.

The objective need for a loan to ensure the continuity of production of the borrower and the preservation by the lender of property rights to the borrowed funds determine the economic dependence of the borrower on the lender. The indicated dependence at the same time does not mean that the place of the borrower in the credit transaction is less significant than the place of the lender. They act as equal parties to the credit transaction, on the coincidence of the goals and interests of which equally the emergence of a credit relationship.

The object of a credit transaction for which a credit relationship arises is the lending value. Its isolation as a special value is associated primarily with the nature of the movement: from the lender to the borrower, and then from the borrower to the lender. The need to repay the borrowed value by the borrower is determined by the preservation of property rights to it by the creditor, and the provision of repayment is achieved in the process of using the borrowed value in the borrower's household.

The recurring nature of the movement of the loaned value implies its preservation at all stages of this movement. Indeed, the credit ratio, being a value one, necessitates the observance of equivalence in the relationship between the lender and the borrower. This means that, using the loan in its reproduction process, the borrower must return to the lender the value equivalent to that received on credit.

Loaned value has the property of ensuring the continuity of production and, on this basis, accelerate the reproduction process. This quality is due to the fact that the use of credit allows you to reduce the need for the accumulation of own resources for the development of production and contributes to the resumption and continuation of the reproductive cycle, the continuity of the flow of funds.

A characteristic feature is the advance character of the loan value. Advance of value takes place if its use involves the receipt of income or any other effect. The purpose of taking a loan is not only to cover the shortage of the borrower's own funds, but also to receive income as a result of using the loan value. Thus, the loan precedes the formation of income that the borrower can receive as a result of the use of borrowed funds in their business activities. Advances are of a credit nature, that is, they constitute a peculiarity of the loaned value if the repayment of funds issued in the loan is respected. At the same time, in compensatory credit transactions, the lending value does not have an advance character and is used to cover expenses already incurred at the expense of the borrower.

So, the essence of each structural element of credit is notable for its significant originality and reflects the specifics of credit relations. The essence of credit as an economic category can be expressed only by the characteristic of all its elements in unity. Underestimation of this provision can lead to negative consequences in practice. Absolutization of one of the elements of credit entails a distortion of the goals and soundness of the state’s credit policy due to the underestimation of all objective factors and processes in the credit sphere.

As noted, the lending value manifests its specific content in motion. The sequence of movement, almost always observed, can be represented by the following stages: accumulation of funds; loan placement; obtaining a loan by the borrower; use of funds received on credit; release of funds from the borrower; repayment of borrowed funds; receipt of the loan value (and loan interest) by the lender.

The allocation of the stages of the movement of the loaned value is rather arbitrary, since the movement of the loan, which is integral in its essence, has the character of a single process. However, consideration of the sequence of movement of the loan is important for a more complete description of its essence, since there are points of view relating to the loan only one or several stages of the movement of the loaned value (for example, only the placement of the loan, only the return of the loaned value, etc.). Meanwhile, credit acts as a specific form of value movement, and the special return character of this movement can be represented only by all its stages.

The process of returning the loaned value as an act of transferring it from the borrower to the lender is a stage of the loan movement. However, loan repayment as an inherent property is a constitutive feature of the credit relationship as a whole. The obligation to repay is determined by the fact that, firstly, when transferring the borrowed value to the borrower, the creditor does not transfer ownership of it; secondly, both the release of funds from the lender and the need for additional funds from the borrower are temporary. Repayment is an objective property of the loan, and its non-observance entails a change in the credit nature of the transaction, distortion and degeneration of credit relations.

In a planned, centralized economy, credit was interpreted as the movement of a company's loan fund, which was a set of production relations arising from a purposeful, planned movement of loaned value. The loan fund was a concept that reflected the nature of the movement of loaned value in a society where the state form of ownership of the means of production absolutely prevailed. In other words, it functioned as a centralized state-wide, although not all, loan fund, which the state controlled.

In a market economy, the nature of the movement of loaned value on a macroeconomic scale is determined by property relations, the forms of which are diverse, and the state form of ownership does not prevail over the others and cannot serve as the basis for comprehensive planning from a single center. Under these conditions, the movement of loan capital is increasing the importance of state regulation of the credit sector, which at the same time has economic boundaries due to private ownership of the means of production. In general, the basis of the functioning of loan capital remains the market mechanism.

The owners of the loan fund are currently primarily banks (central and commercial). In addition, the owners of this fund are enterprises of various forms of ownership, investment funds, insurance and investment companies, citizens, etc. The reform of the banking system has led to the decentralization and demonopolization of the loan fund, since the joint-stock nature of the formation of the statutory funds of commercial banks implies a significant expansion of their rights by order of credit resources. The movement of credit resources begins to acquire a decentralized nature, and their management is increasingly carried out through a system of measures of monetary regulation of the economy.

So, the essence of credit is complex and has various planes of analysis. Her knowledge is hampered by the variety of manifestations of credit, the specificity of which obscures its essence. In this regard, the economic literature substantiates different points of view on the nature of credit relations.

In the economic literature, the stock theory of credit is also being developed, which until recently considered the socio-economic characteristics of credit as the economic category expressing direct social relations the main one. From these positions, the loan is considered as a systematic movement of the loan fund. However, depending on the interpretation of the concept of loan fund, the essence of this concept varies significantly.

Prospects for solving the theoretical problems of credit, one of the most difficult in economic science, are associated with the creation of a theory of modern money.