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Should banks offer concessions? Lending rates for manufacturers’ green products

Author

Listed:
  • Yanhong Si
  • Junfeng Tian
  • Li Wang
  • Xixiu Sun

Abstract

Green loans are not only a new business opportunity but also an important financial tool to promote green consumption. We study the optimal pricing decision of the manufacturer and the lending rate decision of the bank considering the heterogeneous environmental preferences of consumers. It is demonstrated that whether to offer green loan concessions depends on cut-offs with respect to the cost of nongreen products and the green preferences of environmental consumers. Our results indicate that green loan concessions that meet particular conditions can be more profitable for both banks and manufacturers. Consumer surplus and total social welfare can also be improved simultaneously. This finding explains why green loans can be advocated and implemented. Compared to scenarios involving strong green preferences, green loans are more applicable in scenarios with weak green preferences. From the opposite perspective, we can conclude that withdrawal conditions exist for interest rate concessions. Managerial insights are presented, and theoretical viewpoints are confirmed by taking China’s new energy vehicle subsidy declining policy as an example.

Suggested Citation

  • Yanhong Si & Junfeng Tian & Li Wang & Xixiu Sun, 2022. "Should banks offer concessions? Lending rates for manufacturers’ green products," International Journal of Production Research, Taylor & Francis Journals, vol. 60(12), pages 3901-3919, June.
    • Handle: RePEc:taf:tprsxx:v:60:y:2022:i:12:p:3901-3919
    DOI: 10.1080/00207543.2021.1934591
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