Investing Of Creditors

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Investing of creditors is encouraged by a system in our country, which transfers creditor’s rights. The economics of this process is based on the investment cost of short-term rights and long-term stockholders’ rights. The economics of this system helps solve the problem of conflicting incentive of debtors and equity holders.

The investor earns investment income in the form of dividends while the creditor earns interest, fees, and other credit charges. A creditor is like a bank, and gives out loans to debtors on the condition that they will repay the borrowed money and the interest fee on a set date. Creditors have the advantage of having survived several market phases, paradigms, and cycles, including high-interest rate and high-inflation periods.

A sustainable company should satisfy the legitimate needs of both its creditors and shareholders. Both parties play a vital role in financing a company’s long-term growth. Incorporating these interests into corporate governance and management can be a difficult task, but it’s possible to find areas of alignment and reconciliation.

Regulatory oversight of banks and financial institutions is an important feature of the financial system. However, the interests of banks’ creditors and shareholders are not always aligned. A bank’s shareholders and creditors should seek alignment as risk-capital providers.

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