Creditworthiness; credit theory; methods of evaluation

Abstract

The authorss regard credit evolution in the economic thought and the notion of borrower’s creditworthiness, with a special emphasis on its place in credit theory. In the process of credit theory evolution the authorss singled out three stages of theory development: 1) the naturalist theory of credit that originated within the classical political economy (A. Smith, D. Ricardo) and treated credit as a natural mechanism used by banks to redistribute the material resources in the society; 2) the capital-raising theory of credit that originated in the framework of monetarism (J. Loe, G. Mcleod, J. Shumpeter, F. Friedman, etc.) and is based on the position that credit can set in movement all production factors that are not in use in the country to create wealth and capital; 3) theory of credit regulation that originated under the impact of the depression of 1929-1933 within J. Keins’Canes’ theory and justified the significance of credit regulation in economy, emphasizing that it may facilitate economic development also in the period of crisis. Along with the origin of credit theory in economic research literature in the 18th century the term ‘borrower’s creditworthiness’ appeared that was used by A. Smith, J. Keins, N. Bunge, V. Kossinsky, etc. The analysis of definitions of borrower’s creditworthiness available in research literature makes it possible for the authorss of the present study to argue that each of the suggested definitions emphasizes 1-2 aspects of creditworthiness without its systemic formulation, taking into account the borrower’s ability of receiving, efficiently using, and repaying credit. Hence, the authorss suggest own updated definition of borrower’s creditworthiness that is considered to be innovative and especially significant in the context of the borrower’s long-term development. It must be noted that in the science of economics the assessment of borrower’s creditworthiness is based on two methodological paradigms – creditworthiness as absence of bankruptcy and creditworthiness as an ability of efficient use of credit; the authors consider the latter to comply with the conception of a sustainable economic development, thus it must be the basis for selecting methods of assessment of borrower’s creditworthiness in the contemporary practice of crediting. The authorss have selected for analysis methods of assessment of borrower’s creditworthiness existing in research literature and actually used – rating, prognosis, complex methods – whereof borrower’s creditworthiness is calculated by multiplying the chosen indicator values with the weight of their significance in the integral indicator.