Supriya Kapoor
“Our collaboration has been invaluable in empirically mapping the varied substitution patterns in SME financing, providing actionable insights to better align financial stability tools with real firm-level behaviour.”
Dr. Anuj Pratap Singh, Economist, Macro-Finance Division, Central Bank of Ireland
Project Name: Monetary Policy Tightening and SME Bank-Credit Demand Substitution
Problem addressed by the research
The European Central Bank’s recent increases in interest rates have created an urgent policy need to understand how these rate increases affect the access of small and medium enterprises (SMEs) to credit. How are SMEs reacting and are they using alternative sources of finance to traditional bank credit?
Project description
Professor Supriya Kapoor’s research investigates how SMEs in the euro area responded to this recent monetary policy tightening. To conduct the study, Professor Kapoor acted as a research affiliate, collaborating with researchers at the Central Bank of Ireland. Using firm-level survey data, the team examined whether SMEs substituted away from traditional bank credit towards alternative sources of finance. The study addresses and identifies critical heterogeneity across firm types, providing insights for financial stability and inclusive policy design.
Project outcomes so far
The research is published in the Trinity Economics Working Paper Series and has been widely disseminated, including to the European Money and Finance Forum (network association of central banks, supervisors, financial institutions, academic institutions). It has been briefed to the Director of Financial Stability at the Central Bank of Ireland and has informed internal discussions on SME credit risk.
By revealing how monetary tightening influences SME credit behaviour, policymakers gain insights into firms most vulnerable to funding shocks, supporting targeted interventions. Firms themselves benefit as the research highlights alternative viable financing pathways. These impacts are relevant amid ongoing rate hikes and will grow with future monetary policy shifts.