Finance, Law, and the Crisis of COVID-19: An Interdisciplinary Perspective (Contributions to Management Science) 3030894150, 9783030894153

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Contributions to Management Science

Nadia Mansour Lorenzo M. Bujosa Vadell   Editors

Finance, Law, and the Crisis of COVID-19 An Interdisciplinary Perspective

Contributions to Management Science

The series Contributions to Management Science contains research publications in all fields of business and management science. These publications are primarily monographs and multiple author works containing new research results, and also feature selected conference-based publications are also considered. The focus of the series lies in presenting the development of latest theoretical and empirical research across different viewpoints. This book series is indexed in Scopus.

More information about this series at https://link.springer.com/bookseries/1505

Nadia Mansour • Lorenzo M. Bujosa Vadell Editors

Finance, Law, and the Crisis of COVID-19 An Interdisciplinary Perspective

Editors Nadia Mansour University of Sousse and University of Salamanca Research Laboratory Larime Salamanca, Spain

Lorenzo M. Bujosa Vadell Facultad de Derecho University of Salamanca Salamanca, Spain

ISSN 1431-1941 ISSN 2197-716X (electronic) Contributions to Management Science ISBN 978-3-030-89415-3 ISBN 978-3-030-89416-0 (eBook) https://doi.org/10.1007/978-3-030-89416-0 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Switzerland AG. The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

Contents

Consumer Credit in Poland and France and the COVID-19 Pandemic: Prevention and Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . Anna Urbanek

1

Corporate Social Responsibility and Women EmpowermentA Study of North 24 Parganas, West Bengal, India . . . . . . . . . . . . . . . . Gouranga Patra and Prithvish Bose

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The Financial Sphere in the Era of Covid-19: Trends and Perspectives of Artificial Intelligence . . . . . . . . . . . . . . . . . . . . . . . . . . . Hanane Allioui and Azzeddine Allioui

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ECB’s Pandemic Emergency Purchase Programme from Legal Perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Johan Schweigl

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Impact of CSR in Brand Equity as a Marketing Tool: A Study on Registered Medium Enterprises of Consumer Durables in Kolkata, West Bengal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mainak Chakraborty and Sourav Kumar Das The Evolution of Prudential Rules on Credit Risk Management: From Basel Agreements to IFRS 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mohamed Bechir Chenguel and Nadia Mansour

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Under Pressure: Integrating Policy Interventions to Save Distressed Indian SMEs of COVID-19 Aftershocks . . . . . . . . . . . . . . . . . . . . . . . . . 107 Rashmi Rai and Lakshmypriya K. Insolvency Law and Covid-19: The Finnish Example on Tackling the Pandemic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 Laura Ervo

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Contents

The Effect of Covid 19 Pandemic on the Financial Market’s Performance: Evidence from Top ASEAN Stock Markets . . . . . . . . . . . 139 Van Chien Nguyen and Thu Thuy Nguyen Initial Responses to COVID-19 Pandemic in Turkey: General, Financial, and Legal Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 Volkan Göçoğlu and Hayriye Şengün Criminal Activities During COVID-19: Evidence from India . . . . . . . . . 173 Shabnam Parween, Mazhar Shamsi Ansary, and Santosh Kumar Behera Bibliometric Analysis through the Use of Keywords and Abstract: Research in Law during the Pandemic . . . . . . . . . . . . . . . . . . . . . . . . . . 193 Sonia Elizabeth Ramos-Medina Law and Economics of Evolution of Banking Regulation in India . . . . . 209 Mononita Kundu Das and Rituparna Das The Applicable Law on Digital Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . 221 Wael Saghir and Dimitrios Kafteranis

Consumer Credit in Poland and France and the COVID-19 Pandemic: Prevention and Sanctions Anna Urbanek

1 Introduction Mortgage credit is already a problem familiar to some from experience and to some from media messages. Even more problematic is consumer credit regulated by the Consumer Credit Directive 2008/48/EC (hereinafter: the CCD),1 which should ensure a high level of consumer protection and the integrity of the EU internal market. In view of the ongoing COVID-19 pandemic and the economic crisis, the CCD is currently facing a severe test of its effectiveness. At the end of 2020 the European Commission published a report2 on the implementation of the CCD complemented by a comprehensive implementation evaluation.3 While the CCD has had a partially positive impact in strengthening consumer protection for borrowers, a number of shortcomings have been identified. Of these, provisions on the scope of the CCD, creditworthiness assessment and sanctions are of particular importance in times of pandemic. The CCD’s scope does not cover, among other things, payday loans, which are currently enjoying increased popularity. Creditworthiness assessment should only allow consumers to take out

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Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008 on credit agreements for consumers and repealing Council Directive 87/102/EEC, OJ L 133, 22.5.2008, pp. 66–92. 2 Report from the Commission to the European Parliament and the Council on the implementation of Directive 2008/48/EC on credit agreements for consumers, COM(2020) 963 final. 3 Directorate-General for Justice and Consumers, Evaluation of Directive 2008/48/EC on credit agreements for consumers Final Report, 2020. A. Urbanek (*) Faculty of Law and Administration, Department of European Economic Law, University of Łódź, Łódź, Poland e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 N. Mansour, L. M. Bujosa Vadell (eds.), Finance, Law, and the Crisis of COVID-19, Contributions to Management Science, https://doi.org/10.1007/978-3-030-89416-0_1

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credit who have the means to repay it. However, in times of pandemics, many consumers’ financial situations are not stable and they may have difficulty in meeting repayments. Sanctions, on the other hand, are a guarantee of compliance with the rules and effective consumer protection. Yet since the outbreak of the pandemic, traders have been committing more breaches of consumer rights. The report emphasises the importance of differences in the laws implementing the CCD in Member States. In accordance with Article 114 of the Treaty on the Functioning of the European Union (hereinafter: TFEU),4 the EU shall aim to approximate the laws of the Member States to ensure the functioning of the internal market. Regulatory differences undermine the integrity of that market. The malfunctioning is manifested in a distortion of competition between creditors. Legislative freedom left to the Member States has contributed to the fragmentation of law in the EU. Differences in national regulations also hinder the cross-border operations of creditors. In view of the planned revision of the CCD, it is worth looking at national rules which go beyond its provisions. It may be that solutions along the lines of these provisions in the CCD will help to strengthen the effectiveness of consumer protection, particularly with regard to the inclusion of payday loans in the CCD, the stricter requirements for creditworthiness assessment and the specification of sanctions. In the solutions adopted in Polish and French law, although they differ from each other in many respects, I notice provisions which could potentially have a positive impact on the effectiveness of the CCD, including during an economic crisis.

2 Impact of the COVID-19 Pandemic on the EU Credit Market Since the outbreak of the pandemic, the percentage of credit extended to consumers has increased.5 In mid-2020 the European Commission published a non-binding list of good practices on how creditors can support consumers in repaying their credits.6 In the end, each Member State adopted its own policy to deal with the impact of the pandemic. Credit moratoria were mainly introduced by banks.7

4 Consolidated version of the Treaty on the Functioning of the European Union—Protocols— Annexes—Declarations annexed to the Final Act of the Intergovernmental Conference which adopted the Treaty of Lisbon, signed on 13 December 2007—Tables of equivalences, OJ C 326, 26.10.2012, pp. 47–390. 5 European Commission, European Economic Forecast. Winter 2021, p. 12. 6 European Commission, Stakeholder Dialogue Outcome, Best Practices in Relation to Relief Measures Offered to Consumers and Businesses in the Context of the Covid-19 Crisis, Brussels, 14.7.2020. 7 European Banking Authority (2020), Banks Report a Significant Use of COVID-19 Moratoria and Public Guarantees, https://eba.europa.eu/banks-report-significant-use-covid-19-moratoria-and-pub lic-guarantees, dostęp: 30.11.2020 r.

Consumer Credit in Poland and France and the COVID-19 Pandemic: Prevention. . .

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The pandemic provoked traders to take advantage of a difficult situation for consumers,8 including by using unfair commercial practices. Directive 2005/29/ EC on unfair commercial practices9 (hereinafter: the UCPD) defines a commercial practice as any act, omission, course of conduct or representation, commercial communication including advertising and marketing, by a trader, directly connected with the promotion, sale or supply of a product to consumers.10 The UCPD prohibits commercial practices which are contrary to the requirements of professional diligence and materially distort or are likely to distort the economic behaviour of the consumer with regard to the product.11 In particular, misleading and aggressive practices shall be regarded as unfair commercial practices.12 Misleading means that the trader, by giving or omitting certain information, causes the consumer to have a false impression of the product or the service he is offering. An aggressive practice, on the other hand, involves various forms of pressure and coercion on the consumer. As a result of unfair commercial practices, the consumer decides to enter into a contract he would not otherwise have entered into. Although unfair commercial practices had already been used by creditors before the outbreak of the pandemic,13 their use has now increased and Member States and consumer organisations have taken action to curb this trend.14 For example, the French government warned in early 2021 of an increase in misleading practices for consumers. Traders advertised, among other things, tests and drugs for coronavirus, food to protect against coronavirus, and impersonated administrations by sending messages related to the pandemic, encouraging people to click a link or call back a premium rate number. In this way they collected consumers’ data, in particular their bank account or transfer history.15 In Poland, on the other hand, the Warsaw District Court issued a judgment16 at the end of June 2021 prohibiting unfair commmercial practices by a bank in the form of prohibited clauses in annexes allowing the deferral

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C. Riefa, Coronavirus as a Catalyst to Transform Consumer Policy and Enforcement, Journal of Consumer Policy 3/2020, p. 451–452. 9 Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market and amending Council Directive 84/450/EEC, Directives 97/7/EC, 98/27/EC and 2002/65/EC of the European Parliament and of the Council and Regulation (EC) No 2006/2004 of the European Parliament and of the Council, OJ L 149, 11.6.2005, pp. 22–39. 10 Art. 2(d) of the UCPD. 11 Art. 5 (1) and (2) of the UCPD. 12 Art. 5 (4) of the UCPD. 13 Center for European Policy Studies, Tying and Other Potentially Unfair Commercial Practices in the Retail Financial Service Sector. Final Report, 2009, p. 88 et seq. 14 E.g.: https://www.beuc.eu/covid-19-and-consumer-policy#membersactions; https://ec.europa.eu/ info/live-work-travel-eu/consumer-rights-and-complaints/resolve-your-consumer-complaint/euro pean-consumer-centres-network-ecc-net_en#ecc-net-and-covid-19. 15 https://www.economie.gouv.fr/dgccrf/arnaques-liees-au-coronavirus. 16 Wyrok Sądu Okręgowego w Warszawie z 25.6.2021 r. Rzecznik Finansowy vs. Santander Bank Polska S.A., IV C 2336/20.

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of credit repayments due to COVID-19 pandemic. These provisions read: “The bank has an undisputed claim against the borrower” and “The borrower states that he confirms the amount of the loan debt resulting from the existing loan servicing as at the date of application”. According to the Financial Ombudsman, who brought an action in this case, this was to hinder or discourage borrowers from pursuing potential claims against the bank.17 In addition, some consumers have characteristics that make them particularly vulnerable to business practices, so-called vulnerable consumers. EU law has accepted that the main characteristics that indicate vulnerability are age, physical or mental infirmity and credulity.18 Nevertheless, in the credit market additional factors are also relevant, e.g. lack of competence to assess the terms and conditions of a contract and difficult financial situation, e.g. caused by a crisis. More often than age or health, consumers indicate financial problems as a factor influencing their vulnerability.19 The research shows that young, single people have more difficulties in repaying, especially, payday loans,20 which are characterised by much higher interest rates and shorter repayment periods than other loans and credits. During the pandemic, many vulnerable consumers, whose vulnerability has increased due, for example, to a reduction or loss of income, opted for payday loans.21 Besides, at the onset of the pandemic, consumers’ wages decreased22 and indebtedness increased,23 and with them increased concerns about their future existence.24

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https://rf.gov.pl/2020/05/07/rzecznik-finansowy-wystapil-do-sadu-przeciwko-santander-bankpolska/. 18 According to article 5 (3) of the UCPD commercial practices which are likely to materially distort the economic behaviour only of a clearly identifiable group of consumers who are particularly vulnerable to the practice or the underlying product because of their mental or physical infirmity, age or credulity in a way which the trader could reasonably be expected to foresee, shall be assessed from the perspective of the average member of that group. 19 European Commission, Consumer Condition Scoreboard. Consumers at Home in the Single Market, 2019, p. 56, https://ec.europa.eu/info/sites/info/files/consumers-conditions-scoreboard-201 9_pdf_en.pdf. 20 European Parliament, Consumer protection aspects of financial services: Study, 2014, p. 60. 21 European Union Finance Watch, Statement at the IMCO Committee hearing on 18 March 2021 Consumer protection in the context of digitalisation of retail financial services (CCD and DMFSD) during the Covid-19 pandemic. 22 OECD, Statistical Insights: How did the first wave of the COVID-19 pandemic affect the household sector and public finances?; https://www.oecd.org/sdd/na/statistical-insights-how-didthe-first-wave-of-the-covid-19-pandemic-affect-the-household-sector-and-public-finances.htm. 23 COVID-19 Consumer Law Research Group, Consumer Law and Policy Relating to Change of Circumstances Due to the COVID-19 Pandemic, Journal of Consumer Policy 2020, vol. 43, issue 3, pp. 441–442. 24 See e.g.: Are we heading for a new consumer debt crisis following the COVID-19 pandemic?, https://edgardunn.com/2020/07/are-we-heading-for-a-new-consumer-debt-crisis-following-thecovid-19-pandemic/;

Consumer Credit in Poland and France and the COVID-19 Pandemic: Prevention. . .

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As a result, consumers in the EU have tried to cut back on their spending.25 In France, for example, household savings in 2020 have risen by almost €100 billion compared to 2019.26 However, consumer credit is gradually increasing, compared to other euro area countries.27 In Poland, almost 10% of cash credit borrowers are in arrears, but more than 40% of borrowers of non-bank consumer loans, i.e. those granted by legal persons other than banks and by individuals for non-business purposes, are in arrears on their current instalments. The number of people with credit or loan commitments in Poland currently stands at 48%.28

3 Harmonisation of Credit Granting to Consumers in Directive 2008/48/EC on Consumer Credit The main piece of EU law governing the provision of credit to consumers is the CCD. It aims to achieve a high level of consumer protection while ensuring that consumer credit is granted cross-border.29 Although minimum harmonisation of the rules governing consumer rights is the rule under EU law,30 the CCD identifies the need for full harmonisation of the rules in order to achieve a high level of consumer protection and ensure the functioning of the internal market.31 On this basis, Member States may not maintain or introduce in their national law provisions diverging from those laid down in the CCD.32 But this does not mean that no regulatory discretion is left to Member States. On the contrary, the CCD provides for exceptions to the principle of full harmonisation.33 This is reflected in Article 1, according to which the CCD aims to harmonise certain aspects of the laws, regulations and administrative procedures of the Member States concerning credit agreements for consumers. As set out in recital 7 of the CCD, these aspects relate to the key areas considered optimal for achieving a high level of consumer protection and the integrity of the

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Deloitte Insights, European consumers after the pandemic. What sort of recovery will we get?, p. 2, https://www2.deloitte.com/content/dam/insights/articles/emea-134280-european-consumersafter-the-pandemic/DI_European-consumers-after-the-pandemic.pdf. 26 Deloitte Insights, European consumers after the pandemic . . ., p. 8. 27 Bank de France, State Info, Les crédits à la consommation—France et Zone Euro • T1 2021, 28.6.2021 r. 28 Biuro Informacji Kredytowej, Analizy rynkowe, https://media.bik.pl/analizy-rynkowe. 29 P. Rott., Consumer Credit, (in:) N. Reich, H.-W. Micklitz, P. Rott, K. Tonner (eds.), European Consumer Law, Intersentia 2014, p. 204. 30 H.-W. Micklitz, Do Consumers and Businesses Need a New Architecture of Consumer Law? A Thought Provoking Impulse, Yearbook of European Law 2013, vol. 32, issue 1, p. 277. 31 Recital 9 of the CCD. 32 Art. 22 (1) of the CCD. 33 Recital 10 of the CCD indicates that the Directive should not prevent its application by Member States, in accordance with community law, in areas which are not covered by its scope.

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internal market.34 Accordingly, the CCD, inter alia, defines consumer credit; lists the types of credit to which it does not apply (Article 2); lays down information requirements and pre-contractual conduct (Articles 4–7); requires Member States to ensure that a creditworthiness assessment and access to databases are carried out (Articles. 8 and 9); provides for information requirements in the credit agreement (Articles 10–13); defines consumer rights (Articles 14–18); indicates the calculation of the annual percentage rate of charge (Article 19); obliges Member States to provide for sanctions for granting consumer credit in breach of the transposing national provisions (Article 23).

4 Evaluation of the Implementation of Directive 2008/48/EC on Consumer Credit Between November 2018 and October 2019, the European Commission carried out an assessment of the implementation of the CCD in the Member States.35 The report on the implementation does not therefore take into account the impact of the pandemic on the credit market and consumer protection, but it sheds additional light on certain elements of this regulation that are particularly sensitive during the current crisis. First of all, the CCD has not fully met its objective and, in certain respects, has not contributed to the approximation of Member States’ legislation. Almost all Member States have decided, in areas not covered by full harmonisation, to go beyond the provisions of the CCD and introduce more restrictive rules.36 Regulatory fragmentation has also increased costs for traders and makes crossborder lending more difficult.37 Among the shortcomings of the CCD, the report identifies, inter alia, its scope; the rules on the conduct of creditworthiness assessments; and the rules on enforcement of the CCD, which have contributed to further regulatory fragmentation in the EU due to differences in the types and levels of sanctions, making cross-border redress more difficult.

34

See also e.g.: judgement of the CJ, 27.3.2014, C-565/12, LCL Le Crédit Lyonnais, ECLI:EU: C:2014:190, point 42; judgement of the CJ, 18.12.2014, C-449/13, CA Consumer Finance, ECLI: EU:C:2014:2464, point 21; judgement of the CJ, 21.4.2016, C-377/14, Radlinger Radlingerová, ECLI:EU:C:2016:283, point 61; judgement of the CJ, 9.11.2016, C-42/15, Home Credit Slovakia, ECLI:EU:C:2016:842, point 41. 35 Directorate-General for Justice and Consumers, Evaluation . . ., p. 9. 36 Directorate-General for Justice and Consumers, Evaluation . . ., pp. 38–40. 37 Directorate-General for Justice and Consumers, Evaluation . . ., p. 26.

Consumer Credit in Poland and France and the COVID-19 Pandemic: Prevention. . .

4.1

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Scope of Directive 2008/48/EC on Consumer Credit

According to article 2 (2) the CCD does not apply to credit agreements: secured by a mortgage or other security on immovable property; to acquire or retain property rights in land; below EUR 200 or above EUR 75000; in the form of a hire or a lease where there is no obligation to purchase the object of the contract; in an overdraft facility which must be repaid within 1 month; interest-free and without any other charges and agreements providing for repayment within 3 months on payment of insignificant charges; granted by an employer to his employees only; concluded with investment firms; as a result of a settlement reached in court or before another statutory authority; for deferred payment of existing debts; on the conclusion of which the consumer is required to deposit an item as security with the creditor; granted to a restricted group of persons by virtue of a statutory provision of general interest. Considering the regulatory freedom of Member States, the scope of credit granted to consumers on the basis of the provisions implementing the CCD varies. For example, the consumer credit act38 (ustawa o kredycie konsumenckim), which implements the CCD into Polish law, extended the scope of regulation to include, inter alia, credits up to EUR 200, which are excluded from the CCD.39 By contrast, the French consumer code40 (code de la consommation), which implements Directive 2008/48/EC in Book III,41 exempts loans of less than EUR 200 or more than EUR 75000, following the example of the CCD.42

4.2

Creditworthiness Assessment Rules

The CCD 2008/48/EC requires Member States to ensure that a pre-contractual assessment of a consumer’s creditworthiness is conducted on the basis of sufficient information, where appropriate obtained from the consumer and, where necessary, on the basis of a consultation of the relevant database.43 These requirements are formulated in very general terms and do not explicitly oblige the granting of credit to be subject to a positive outcome of the assessment, nor do they require the consultation of information other than that provided by the consumer, unless deemed necessary by the creditor. Nor does the CCD specify what is meant by sufficient information, leaving the fine-tuning of requirements to the Member States.

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Ustawa z 12.5.2011 r. o kredycie konsumenckim, Dz.U.2019.1083, 12.6.2019. Art. 3 of the consumer credit act. 40 Code de la consommation, Version en vigueur au 30 juin 2021. 41 With references to other legislation, see also e.g. art. L312-3. 42 Art. L312-4 of the consumer code. 43 Art. 8 of the CCD. 39

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The Polish consumer credit act broadly reproduces the obligations of the CCD, but differs the assessment procedure depending on the creditor.44 Where the creditor is a bank or other institution authorised by law to grant credit,45 creditworthiness assessment is carried out in accordance with article 70 of the banking law46 (ustawa prawo bankowe), which excludes the possibility to grant credit to an individual, including a consumer, without creditworthiness. In the case of other creditors, e.g. loan companies, there is not even a conditional prohibition on granting credit to a consumer without creditworthiness. The legitimacy of such a distinction is questionable. Importantly, a negative creditworthiness assessment does not impose a civil law obligation to refuse to conclude an agreement and does invalidate it.47 In contrast, the French consumer code provides for a single creditworthiness assessment procedure for all creditors.48 For transactions concluded at a point of sale, such as a bank branch, or by means of distance communication, such as the Internet, the creditor provides the consumer with a summary sheet of his financial situation, which is taken into account in the assessment of his creditworthiness. In addition, if the credit exceeds € 3000, the consumer must confirm the information contained in the sheet by producing proof of identity, residence and income. However, this does not mean that a creditor cannot grant credit to a consumer who is not creditworthy.

4.3

Sanctions

Member States are required to lay down rules on penalties applicable to infringements of the national provisions adopted pursuant to the CCD. According to Article 23, the sanctions provided for must be effective, proportionate and dissuasive. The report on the implementation of the CCD reveals significant differences in the types and levels of sanctions applied by national authorities when enforcing the CCD.49 Crucially, according to the Court of Justice, in order to determine whether national legislation sufficiently implements the obligations arising from a given directive, account must be taken not only of the legislation specifically adopted for the transposition of that directive, but also of all available and applicable legal rules.50 Moreover, in order to resolve a case in a manner compatible with the objectives

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Art. 9(1) and (2) of consumer credit act. E.g. Spółdzielcze Kasy Oszczędnościowo-Kredytowe, see art. 5(2a) Consumer Credit Act. 46 Ustawa z 29.8.1997 r. Prawo bankowe, Dz.U.2019.1083 from 12.6.2019. 47 T. Czech. Kredyt konsumencki. Komentarz, wyd. II, Warszawa 2018, p. 200. 48 Art. L312-16 of the consumer code. 49 Report from the Commission to the European Parliament and the Council on the implementation of Directive . . ., pp. 8–9. 50 Judgement of the CJ, 10.6.2021 r., C-303/20, Ultimo Portfolio Investment (Luxembourg) SA, ECLI:EU:C:2021:479, point 35. 45

Consumer Credit in Poland and France and the COVID-19 Pandemic: Prevention. . .

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pursued by an EU directive, national courts must take account of all provisions of national law and interpret them, so far as possible, in the light of the wording and purpose of that directive.51

5 Sanctions for Breach of the Provisions Implementing the Directive in Poland and in France Both Poland and France have adopted civil and criminal sanctions, including financial penalties and imprisonment. However, their severity varies considerably, so that consumer protection of borrowers is not uniform.

5.1

Criminal Sanctions

Polish law in the code of minor offences (kodeks wykroczeń) provides a fine for, inter alia, breaching information obligations by the borrower and failing to carry out a creditworthiness assessment.52 The maximum fine is PLN 500053 and can be imposed only on natural persons.54 In view of the requirements for sanctions in the CCD, the size and scope of the fine is questionable. The legitimacy of this sanction was also questioned by a Polish court, which referred a question to the CJ for a preliminary ruling55 and pointed out that under Polish law this is the only sanction for failure to comply with the obligation to assess creditworthiness. Failure to fulfil or improper fulfilment of this obligation does not result in the invalidity of the agreement and does not justify the creditor’s liability for damages.56 In fact, one has to agree with the position of the court, because the purpose of Article 138c of the code of minor offences is not to protect the individual interests of the consumer, which results from the lack of a causal link between the creditor’s failure and possible damage to consumer property. The Court stated that while a fine may be a deterrent, its low level may make it insufficient.57 However, Polish law provides for other sanctions, in particular civil-law sanctions, which the courts may impose in

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See: judgement of the CJ, 27.3.2014, C-656/12, Le Crédit Lyonnais, ECLI:EU:C:2014:190, point 54; judgement of the CJ, 5.3.2020, C-679/18, OPR-Finance, ECLI:EU:C:2020:167, point 41. 52 Art. 138c ustawy z dnia 20.5.1971 r. kodeks wykroczeń, Dz.U.2021.281 from 22.6.2021. 53 Art. 24(1) of the code of minor offences. 54 Art. 1 of the code of minor offences. 55 Reference for a preliminary ruling from the Regional Court in Opatów from 8.7.2020, C-303/20, Ultimo Portfolio Investment (Luxembourg) S.A. 56 Reference from the Regional Court in Opatów . . ., p. 5. 57 Judgement of the CJ, C-303/20 Ultimo Portfolio Investment (Luxembourg) SA, point 32.

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the event of a breach of the obligation to check a consumer’s creditworthiness.58 These additional sanctions may also be necessary to comply with the CCD. The French consumer code also provides for a financial penalty for infringement of certain provisions concerning the granting of consumer credit.59 For example, for violation of the prohibition on the parties to make any payment within 7 days of the acceptance of the contract.60 In each of the cases listed in the consumer code, the fine is set at EUR 300000, which is an incomparably higher amount than under Polish law. Both Polish and French law also provide for imprisonment in certain cases for breaches of consumer rights by borrowers. In the criminal code61 (kodeks karny) the Polish legislator has chosen to include a prohibition on the exploitation of the counterparty or demanding excessive benefits from the consumer for the use of the capital, inter alia, under the credit granted. Infringement of that prohibition is punishable by imprisonment for a term of between 3 months and 5 years.62 Although the French consumer code does not expressly provide for the possibility of imprisonment for infringement of the provisions implementing the CCD, such sanctions may be derived from the provisions prohibiting unfair commercial practices. Both misleading63 and aggressive commercial practices64 in relations with consumers are punishable by imprisonment of up to 2 years and a fine of EUR 300,000. The fine may be increased, in proportion to the benefit of the offence.65 In addition, creditors who are natural persons and are subject to criminal sanctions for having granted consumer credit in breach of the rules transposing the CCD may be banned from exercising their professional activity for a period of up to 5 years.66 Besides, French law has increased sanctions in the event that a contract is concluded with a consumer by abusing his weakness. According to Article L121–8 of the consumer code, it is prohibited to take advantage of a person’s weakness or ignorance in order to induce him, by means of home visits, to enter into monetary or credit commitments in any form whatsoever, if the circumstances show that the person was not in a position to assess the extent of the commitments entered into or to detect the actions used to induce him to enter into them, or if he appears to have been subjected to duress. Thus, aggressive commercial practices in the form of visits to the consumer’s home are criminalised. As interpreted by the French courts, the consumer’s state of weakness or ignorance must be prior to and independent of the solicitation. In other words, the circumstances in which the

58

Judgement of the CJ, C-303/20 Ultimo Portfolio Investment (Luxembourg) SA, point 31. Art. L-341-12–L341-17 of the consumer code. 60 Art. L312-25 of the consumer code. 61 Ustawa z 6.4.1997 r. kodeks karny, Dz.U.2020.1444 t.j. z 25.8.2020 r. 62 Art. 304 (2) and (3) of the criminal code. 63 Art. L121-2–L121-4 of the consumer code. 64 Art. L121-6 and L-121-7 of the consumer code. 65 Art. L132-2 and L132-11 of the consumer code. 66 Art. L341-18 of the consumer code. 59

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solicitation takes place should not cause a state of vulnerability, but should reveal it.67 The entrepreneur for this abuse is punished with imprisonment of up to 3 years and a fine of EUR 375,000.68 Also in this case, the possibility of a ban on engaging in an activity for up to 5 years is additionally possible.69 A similar punishment is provided for in the French criminal code70 (code pénal), with the difference that the provision requires serious harm to be caused to the victim.71 The abuse must be manifested by an act or omission that causes serious damage. The case law of the French courts additionally draws two conclusions of relevance to consumer creditors. Firstly, this provision may also apply to certain loans.72 Secondly, even if the act is declared invalid, the harm to the consumer remains valid and a sanction may be applied on this basis.73 Therefore, it can be concluded on this basis that the provision applies when a contractual provision is declared invalid.

5.2

Civil Sanctions

Polish civil code74 (kodeks cywilny) in article 3851 implements Directive 93/13/EEC on unfair terms in consumer contracts75 (hereinafter: UTCD). According to this provision, terms of a contract concluded with a consumer that have not been individually negotiated are not binding on him if they shape his rights and obligations in a manner contrary to good practice, grossly infringing his interests. These are the so-called prohibited contractual provisions. It follows directly from the provision that such provisions are not binding on the consumer, but the legislator did not decide to explain how this term should be understood. Pursuant to established case law, such provisions are invalid ex tunc.76 This sanction does not apply to provisions determining the main benefits of the parties, including the price or remuneration, if they were formulated in an unambiguous manner. The parties shall be bound by the contract in the remaining scope. The provision also clarifies that provisions of a contract the content of which the consumer had no real impact on are not individually negotiated. In particular, this refers to the provisions of the contract taken from

67

Cour de Cassation, Chambre criminelle, du 18 mai 1999, 97-85.979. Art. L-132-14 of the consumer code. 69 Art. L-132-15 of the consumer code. 70 Art. 223-15-2 of the criminal code. 71 See also: Cour de cassation, criminelle, Chambre criminelle, 1 avril 2009, 08-86.565. 72 Cour de cassation, criminelle, Chambre criminelle, 6 janvier 2009, 08-82.335. 73 Cour de Cassation, Chambre criminelle, du 12 janvier 2000, 99-81.057. 74 Ustawa z 23.4.1964 r. kodeks cywilny, Dz.U.2020.1740 from 8.10.2020. 75 Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts, OJ L 95, 21.4.1993, pp. 29–34. 76 See e.g. Wyrok Sądu Okręgowego w Warszawie z 25.11.2019 r., XXV C 178/18. 68

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the model contract proposed to the consumer by the contractual partner.77 The President of the Office of Competition and Consumer Protection (Urząd Ochrony Konkurencji i Konsumentów) issues a decision declaring a term of a contract as prohibited.78 A legally valid decision has effect with respect to the entrepreneur with respect to whom the application of the above-mentioned provision has been confirmed and with respect to all consumers who concluded an agreement with the entrepreneur on the basis of the model agreement indicated in the decision.79 In addition, the consumer credit act has introduced the sanction of free credit for violation by the creditor of certain provisions of the credit agreement.80 In this case, the consumer, after giving a written statement to the creditor, shall return the credit without interest and other credit costs due to the creditor at the time and in the manner established in the agreement. This entitlement expires 1 year after the conclusion of the agreement. On the other hand, according to Article L212–1 of the French consumer code, in contracts concluded between professionals and consumers, clauses whose purpose or effect is to create, to the detriment of the non-professional or the consumer, a significant imbalance between the rights and obligations of the parties to the contract shall be considered prohibited.81 This Article also implements Article 3 of Directive 93/13/EEC. The assessment of unfairness of terms shall relate neither to the definition of the main subject matter of the contract nor to the adequacy of the price or remuneration for the goods sold or services offered, provided that these terms are drafted in a clear and comprehensible manner. The types of provisions that create an imbalance between the rights and obligations of the parties to the contract shall be considered prohibited by a decree issued by the Council of State (Conseil d’Etat), after the opinion of the Committee on Abusive Clauses (Commission des clauses abusives), which may remove from the contract or modify the clause containing the prohibited provisions.82 The Commission may ask the civil or criminal courts, as the case may be, to declare that the clause in question is considered unwritten in all identical pending contracts,83 thereby invalidating ex tunc those contractual provisions. Contracts concluded as a result of an abuse of consumer vulnerability shall also be invalidated.84

77

Art. 3851(3) of the code civil. Art. 23b ustawy z 16.2.2007 r. o ochronie konkurencji i konsumentów, Dz.U.2021.275 t.j. from 11.2.2021. 79 G. Karaszewski, Tytuł III. Ogólne przepisy o zobowiązaniach umownych, (w:) J. Ciszewski, P. Nazaruk (red.), Kodeks cywilny. Komentarz, Warszawa 2019, p. 384 et seq. 80 Art. 45 of the consumer credit act. 81 N. Guerrero, Crédits immobiliers indexes sur la parité euro/franc suisse. Les clauses d’indexation monétaire dans les contrats de prêt accordes par un établissement bancaire: une validité discutée, Banque & Droit nr 153 Janvier-Février 2014. 82 Art. L-822-6 of the consumer code. 83 Art. L621-2 of the consumer code. 84 Art. L132-13 of the consumer code. 78

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Another type of sanction provided for in the French consumer code is the deprivation of the right to interest. This applies, inter alia, to the failure to provide the required information prior to the conclusion of the agreement,85 failure to provide explanations necessary for the consumer to knowingly conclude the agreement,86 conclusion with the consumer of an agreement that does not meet the formal conditions.87

5.3

Administrative Sanctions

Where a lender is subject to Polish administrative supervision, it may face public law sanctions under separate provisions. Pursuant to Article 138 (3) of the banking law, if it is found that a bank does not comply with the recommendations or orders addressed to it, as set out in paragraphs (1) and (2) of that provision respectively, and if the bank’s activities are carried out in breach of national and EU regulations governing such activities or pose a threat to the interests of bank account holders, the Polish Financial Supervision Authority (Komisja Nadzoru Finansowego) may apply certain sanctions. Apart from requesting the dismissal of the bank’s president88 and the suspension of a member of the management board,89 the Authority may, inter alia, apply fines against the individual responsible for the breach, up to an amount of PLN 21312000.90 Furthermore, the Authority may impose on a bank a fine of up to 10% of the income shown in the last audited financial statements.91 One of the important competences of the Authority in supervising the financial market is to grant permits for the establishment of banks, pursuant to Article 30a of the banking law. In connection with the conduct of activities by a bank in breach of national and EU regulations governing the activities of a bank, the Authority may revoke the permit for the establishment of a bank and take a decision on its liquidation. These sanctions do not apply to other lenders, such as loan companies, which are not banks. French law also has sanctions for the revocation of a business licence, as set out in the consumer code. However, as I indicated above, they are regulated in the section on civil sanctions.

85

Art. L341-1 of the consumer code. Art. L341-2 of the consumer code. 87 Art. L341-4 of the consumer code. 88 Art. 138(3)(1) of the banking law. 89 Art. 138(3)(2) of the banking law. 90 Art. 138(3)(2a) of the banking law. 91 Art. 138 (3)(3a) of the banking law. 86

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6 State Strategies in the Fight against the Effects of a Pandemic Following the outbreak of the pandemic, almost all Member States experienced a fall in GDP. Although this situation has started to improve over time, the EU has still not managed to return to pre-crisis economic activity.92

6.1

Poland

As part of counteracting the effects of the pandemic, a package of amendments to a number of laws was adopted and financial support in the amount of PLN 212 billion was planned, together forming the so-called Crisis Shield.93 The shield was subsequently amended several times. As part of the first law adopted on 2.3.202094 the maximum amount of non-interest costs of consumer credit was set. Above all, these costs could not be higher than 45% of the total credit amount.95 Violation of these provisions may be considered a practice infringing the collective interests of consumers, and thus is threatened with a monetary penalty imposed by a decision of the President of the Office of Competition and Consumer Protection.96 he provisions concerning the maximum amount of non-interest credit costs were in force until 30 June 2021. The Act of 23.6.2020, the so-called Anti-Crisis Shield 4.0,97 regulated, among other things, the issue of credit moratoria for consumers. According to Article 31 fa (1) of this Act, at the request of the borrower, the creditor shall suspend the performance of a consumer credit agreement within the meaning of the consumer credit act or a credit agreement within the meaning of Article 69 of the banking law—if the borrower is a consumer. However, this can only be used by borrowers who have lost their job or other main source of income after 13 March 2020. The

92

European Commission, European Economic Forecast. Winter 2021, p. 4 et seq. https://www.gov.pl/web/tarczaantykryzysowa/o-tarczy. 94 Ustawa z 20.3.2020 r. o szczególnych rozwiązaniach związanych z zapobieganiem, przeciwdziałaniem i zwalczaniem COVID-19, innych chorób zakaźnych oraz wywołanych nimi sytuacji kryzysowych (hereinafter: ustawa o przeciwdziałaniu COVID-19), Dz.U.2020.1842 from 20.10.2020. 95 Art. 8d of the ustawa o przeciwdziałaniu COVID-19. 96 Art. 106 (1) (4) of the ustawa o ochronie konkurencji i konsumentów. 97 Ustawa z 19.6.2020 r. o dopłatach do oprocentowania kredytów bankowych udzielanych przedsiębiorcom dotkniętym skutkami COVID-19 oraz o uproszczonym postępowaniu o zatwierdzenie układu w związku z wystąpieniem COVID-19 (hereinafter: ustawa o dopłatach), Dz.U.2021.1072 from 16.6.2021. 93

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suspension period is 3 months98 and no interest is charged during this time.99 Crucially, where a consumer was bound by more than one contract of the same type, with the same creditor, he could apply the moratoria to only one loan.100 The provisions are valid until 31.12.2021.

6.2

France

The French government has not decided to cut interest rates,101 but it has taken measures to protect lenders. First of all, in March 2020, the budget law for that year was amended. Accordingly, the French government provided a guarantee for support of EUR 300 billion. The state guarantee could cover financing granted between 16 March 2020 and 31 December 2020 to help companies facing cash shortages linked to the health crisis.102 Thus, the primary inclination was to protect the economy by ensuring the smooth functioning of traders. Besides, also in March 2020, an order was issued on the extension of deadlines expiring during the pandemic period,103 which specified that contractual penalties, including termination and forfeiture, if their purpose is to sanction non-performance of an obligation within a specified period, shall be deemed ineffective or null and void if the period has expired within 1 month after the end of the health emergency. These periodic penalty payments shall take effect 1 month after the end of that period if the debtor has not fulfilled his obligation before that time.104 In view of the changes introduced over time into the Order, the deadline for the ineffectiveness of contractual sanctions has been set to 23.6.2020.105 The main source of protection for consumer borrowers appears to be the existing provisions on the postponement or spreading of the repayment of the amounts due by the debtor, granted by the judge, that is, the grace period. It can be defined as the power granted to judges to postpone or spread over time the payment of a debt due, taking into account the unfortunate situation of the debtor, but without reducing its

98

Art. 31fa (7) of the ustawa o dopłatach. Art. 31fa (11) of the ustawa o dopłatach. 100 Art. 31fa (3) of the ustawa o dopłatach. 101 Polski Instytut Ekonomiczny, Pandenomics. Zestaw narzędzi fiskalnych i monetarnych w dobie kryzysów, Warszawa 2020 r., p. 14. 102 Art. 6 LOI n 2020-289 du 23 mars 2020 de finances rectificative pour 2020 (1). 103 Ordonnance n 2020-306 du 25 mars 2020 relative à la prorogation des délais échus pendant la période d’urgence sanitaire et à l’adaptation des procédures pendant cette même période. 104 Art. 4 Ordonnance n 2020-306. 105 Art. 1 Ordonnance n 2020-306. 99

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amount.106 According to Article 1343–1345 of the civil code107 (code civil), the judge may, taking into account the situation of the debtor and taking into account the needs of the creditor, postpone or spread over time, within a period of 2 years, the payment of the amounts due. By specific and reasoned decision, he may order that the amounts corresponding to the deferred maturities bear interest at a reduced rate at least equal to the legal rate, or that the payments be deducted first from the principal. Enforcement proceedings initiated by the creditor are suspended by order of the judge. The consumer code regulates the matter similarly, indicating that the performance of the debtor’s obligations may be, in particular in the case of a dismissal, suspended by an order of the court to provide security under the conditions provided for in Article 1343–1345 of the civil code. The decree may provide that no interest shall accrue on the amounts due during the grace period. In addition, the judge may specify in his order the conditions for repayment of the amounts that will be due at the end of the period of suspension.108

7 Conclusions The CCD became applicable in 2010, i.e. during the global crisis of 2007–2010, which peaked in 2008 when the CCD was adopted.109 However, its provisions were not a direct response to the problems arising from it, as the legislative proposal for the CCD had already been drawn up in 2002.110 This raises doubts as to whether the CCD guarantees consumers effective protection during an economic crisis. Above all, the CCD does not respond to the current challenges of the credit market, which are the growing indebtedness of consumers and the lack of sanctions that would effectively deter the granting of consumer credit in breach of the provisions implementing the CCD into national law. It also lacks measures which would minimise the negative effects of the economic crisis.

B. Mornet, Les délais de grâce, Revue Juridique de l’Ouest 1997, n spécial, Quatre ans d’application de la réforme des procédures civiles d’exécution, p. 75. 107 Code civil, Version en vigueur au 30 juin 2021. 108 Art. L314-20 of the consumer code. 109 E. Avgouleas, The Global Financial Crisis, Behavioural Finance and Financial Regulation: In Search of a New Orthodoxy, Journal of Corporate Law Studies 2009, issue 9, pp. 23–26. 110 Proposal for a Directive of the European Parliament and of the Council on the harmonisation of the laws, regulations and administrative provisions of the Member States concerning credit for consumers, Dz.Urz. UE 331E, 31.12.2002, pp. 200–248, COM/2002/0443 final. 106

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Directive 2008/48/EC on Consumer Credit and the Economic Crisis

The example of the pandemic shows that EU law lacks solutions to protect consumer borrowers in the event of an economic crisis. The most vulnerable to repayment difficulties are consumers who have lost or reduced their income and consumers who were already in debt before the outbreak of the pandemic. The inequality between consumers and traders, which has always been apparent in the credit market, is now even greater. First of all, it is necessary to revise the concept of the vulnerable consumer and to take into account the impact of crisis situations on their vulnerability. Vulnerable consumers receive special protection and practices targeting them are assessed more strictly. Therefore, the provisions on unfair commercial practices supplement the protection guaranteed by the CCD. The Guidelines on the application of the UCPD give as an example a case concerning the omission of material information by a credit institution. The Hungarian Competition Authority found that consumers who were refused credit by credit institutions on the grounds of low creditworthiness were particularly vulnerable to a particular offer.111 In my opinion, during an economic crisis all consumers are in a situation which makes them particularly vulnerable to the practices of traders, especially in the credit market. It is not only the loss of a job or reduced income that has an impact, but even the stress and state of anxiety in which all consumers undeniably find themselves since the WHO declared the COVID-19 pandemic.112 The current crisis further highlights the need, identified in the report on the implementation of the CCD, to harmonise the rules on credits to which the CCD and the rules on assessing creditworthiness may be applied. Due to the informalisation of the credit procedure and greater accessibility, consumers are now turning more readily to payday loans, which offer them rapid financial support. Unfortunately, due to less favourable repayment conditions and high costs, these loans run the risk of falling into excessive debt. The CCD does not apply to loans of up to EUR 200, which are, for example, payday loans. As a result, lenders granting such loans are not burdened with the extensive information obligations that the CCD imposes on other creditors. Besides, no creditworthiness assessment needs to be carried out at all in respect of the payday loans excluded from the CCD. It is therefore worth considering, when revising the CCD whether, following the example

111 Commission Staff Working Document Guidance on the Implementation/Application of Directive 2005/29/EC on Unfair Commercial Practices Accompanying the Document Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions. A comprehensive approach to stimulating crossborder e-Commerce for Europe’s citizens and businesses SWD/2016/0163 final, pp. 42–43. 112 Www.who.int/dg/speeches/detail/who-director-general-s-opening-remarks-at-the-media-brief ing-on-covid-19%2D%2D-11-march-2020.

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of Poland among others, loans and credits below EUR 200 should also be incorporated into the CCD. I also consider that the rules for carrying out creditworthiness assessments should be defined in the CCD. I propose a ban on granting credit to consumers without creditworthiness, as is the case with banks and other institutions authorised by law to grant credit pursuant to the Polish banking law. If the EU legislator finds this too far-reaching, it is worth considering other options. First of all, creditworthiness assessment should be carried out solely on the basis of economic criteria. Meanwhile, creditors use artificial intelligence algorithms to profile consumer data, e.g. on the basis of social media data.113 Creditworthiness assessment carried out in this way is not transparent, because it is impossible to demonstrate on what basis the algorithm reaches its final conclusion as to whether the consumer is or is not creditworthy, which creates a risk of discrimination.114 Furthermore, the European Banking Authority calls for credit assessments to be suspended during the credit moratoria in the wake of the COVID-19 pandemic.115

7.2

Cross-Border Consumer Credit

The regulatory differences reduce the level of consumer protection and have a negative impact on the internal market. This state of affairs does not correspond to the provisions of the TFEU, but also to the needs of consumers and enterpreneurs. According to Article 26 (2) TFEU, the internal market shall comprise an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured. Currently, cross-border crediting is not possible freely due to regulatory differences across the EU. In 2019, for example, more than 100 lenders urged the European Commission to change the law to facilitate low-value cross-border lending. A letter on the matter was sent to the Commission by: Polish Association of Loan Institutions, Spanish Trade Union of Microcredit Providers, Danish Credit Council and Latvian Association of Alternative Financial Services.116 In addition, of the 17 million consumers who, in recent years, have sought credit in another Member State, only 3 million have succeeded in concluding a contract.117

113

M. Hurley, J. Adebayo, Credit Scoring in the Era of Big Data, Yale Journal of Law & Technology 2016, vol. 18, issue 148, pp. 157–158. 114 F. Mattassoglio, Innovation Technology and Creditworthiness Assessment, (w:) E. Bani, B. Pacucha-Smulska, E. Rutkowska-Tomaszewska (red.), Public and Private Law and the Challenges of New Technologies and Digital Markets. Volume II. Legal Aspects of FinTech, Warszawa 2020, p. 147. 115 European Bank Authority, Guidelines on legislative and non-legislative moratoria on loan repayments applied in the light of the COVID-19 crisis, EBA/GL/2020/02, 2.4.2020 r. 116 https://pzip.pl/aktualnosci/2019/11/18/-list-pzip-aemip-i-lafpa-do-jana-panka-head-of-unit-e1consumer-policy-directorate-general-for-justice-and-consumers-przy-komisji-europejskiej. 117 Directorate-General for Justice and Consumers, Evaluation of Directive 2008/48/EC. . ., p. 53.

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Furthermore, adopting at least minimum requirements in the CCD for dealing with crises, such as the obligation for Member States to introduce moratoria for both bank and non-bank credits, would strengthen consumer protection in times of crisis.

7.3

Effective, Proportionate and Dissuasive Sanctions

Sanctions for infringements of collective consumer interests form a complex system under EU law. Besides Article 23 of the CCD, also Article 13 of the UCPD obliges Member States to adopt effective, proportionate and dissuasive sanctions. These apply in case of infringement of national rules prohibiting unfair commercial practices. In the light of the case-law of the CJ, the assessment of penalties for infringement of the CCD must be made taking into account not only the provision of national law which was specifically adopted in order to transpose the CCD, but also the totality of all the provisions of that law, interpreted as far as possible in the light of the wording and purpose of the CCD.118 The list of sanctions that may be imposed on creditors is therefore very broad and includes not only the provisions implementing the CCD, UCPD and UTCD. In particular, it is worth bearing in mind the changes introduced as part of the New Deal for Consumers package by Directive 2019/2162/EU, the so-called Omnibus.119 Pursuant to Articles 1, 3 and 4 of this Directive, the maximum amount of fines in administrative proceedings for infringements of the provisions implementing the UCPD, UCTD and the Consumer Rights Directive 2011/83/EU120 must amount to at least 4% of the trader’s annual income in the Member State or Member States concerned by the infringement. The new legislation must be adopted by 28.11.2021. Thus, national courts and authorities will have the possibility to impose more harmonised financial penalties on creditors. Apart from the sanctions provided for under Polish and French law, consumers also have private rights of redress in civil proceedings, such as damages, both at national and cross-border level. In particular, the procedure for redress for infringements of collective consumer interests introduced by Directive 2020/1828/EU on

118

Judgement of the CJ, C-303/20 Ultimo Portfolio Investment (Luxembourg) SA, point 46. Directive (EU) 2019/2161 of the European Parliament and of the Council of 27 November 2019 amending Council Directive 93/13/EEC and Directives 98/6/EC, 2005/29/EC and 2011/83/EU of the European Parliament and of the Council as regards the better enforcement and modernisation of Union consumer protection rules, OJ L 328, 18.12.2019, pp. 7–28. 120 Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011 on consumer rights, amending Council Directive 93/13/EEC and Directive 1999/44/EC of the European Parliament and of the Council and repealing Council Directive 85/577/EEC and Directive 97/7/EC of the European Parliament and of the Council, OJ L 304, 22.11.2011, pp. 64–88. 119

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representative actions121 is intended to ensure a high level of consumer protection through effective compensation.122 I value the French solution of more severe penalties for the abuse of consumer vulnerability, which I believe can be applied to all vulnerable consumers. Especially in a time of economic crisis, this increased protection in the form of the threat of severe penalties could deter traders from engaging in unfair commercial practices and taking advantage of the vulnerability of consumers. I also consider the fine of up to EUR 300000 provided for in the French consumer code to be a more appropriate sanction for breaches of consumer credit regulations than the fine of up to PLN 5000 provided for in the Polish code of minor offences. In my view, it is precisely this difference that best illustrates the need to specify sanctions in the CCD. Even if the courts should take into account all the national provisions that may affect the severity of sanctions, and not only those adopted in implementation of the CCD, it is contrary to the principle of legal certainty if the sanction in the provision transposing the CCD is manifestly disproportionate, ineffective and lacking in deterrent effect. Indeed, in practice, I find it difficult to imagine a factual situation in which imposing a fine of PLN 5000 (or less) on a creditor will ensure fulfilment of the obligation imposed by Article 23 of the CCD. Rather, each time a court will have to impose penalties arising from other provisions. I propose that the CCD should specify the financial sanctions for violations of consumer credit regulations by indicating their minimum amount. The CCD could also provide for civil sanctions in the form of exclusion from the right to interest, following the example of the French solutions. Already specifying sanctions in this way, if not in Article 23 of the CCD, then in its recitals, will help national legislators to adapt the legislation accordingly and will contribute to minimising regulatory fragmentation in the EU.

References Avgouleas, E. (2009). The global financial crisis, behavioural finance and financial regulation: In search of a new orthodoxy. Journal of Corporate Law Studies, 9. Czech, T. (2018). Kredyt konsumencki. Komentarz, wyd. II. Giancaspro, M. (2020). COVID-19 consumer law research group, consumer law and policy relating to change of circumstances due to the COVID-19 pandemic. Journal of Consumer Policy, 43(3). Guerrero, N. (2014). Crédits immobiliers indexes sur la parité euro/franc suisse. Les clauses d’indexation monétaire dans les contrats de prêt accordes par un établissement bancaire: une validité discutée. Banque & Droit nr 153 Janvier-Février. Hurley, M., & Adebayo, J. (2016). Credit scoring in the era of big data. Yale Journal of Law & Technology, 18(148).

121

Directive (EU) 2020/1828 of the European Parliament and of the Council of 25 November 2020 on representative actions for the protection of the collective interests of consumers and repealing Directive 2009/22/EC, OJ L 409, 4.12.2020, pp. 1–27. 122 Art. 1 of the directive 2020/1828.

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Karaszewski, G. (2019). Tytuł III. Ogólne przepisy o zobowiązaniach umownych. (w:) J. Ciszewski & P. Nazaruk (red.), Kodeks cywilny. Komentarz. Warszawa. Mattassoglio, F. (2020). Innovation technology and creditworthiness assessment. (w:) E. Bani, B. Pacucha-Smulska, E. Rutkowska-Tomaszewska (red.), Public and private law and the challenges of new technologies and digital markets. Volume II. Legal aspects of FinTech, Micklitz, H.-W. (2013). Do consumers and businesses need a new architecture of consumer law? A thought provoking impulse. Yearbook of European Law, 32(1). Mornet, B. (1997). Les délais de grâce, Revue Juridique de l’Ouest, n spécial, Quatre ans d’application de la réforme des procédures civiles d’exécution. Riefa, C. (2020). Coronavirus as a catalyst to transform consumer policy and enforcement. Journal of Consumer Policy, 3. Rott, P. (2014). Consumer credit. In N. Reich, H.-W. Micklitz, P. Rott, & K. Tonner (Eds.), European consumer law. Intersentia.

Corporate Social Responsibility and Women Empowerment- A Study of North 24 Parganas, West Bengal, India Gouranga Patra and Prithvish Bose

1 Introduction Corporate social responsibility is an initiative by the corporate to enhance the organization goodwill and build an image of the company in front of society. Companies do lot of work beyond their statutory obligation and get favorable response from government. Most of the job of CSR are related to society’s wellbeing and development. In this nutshell, empowering women is also a bigger part of CSR. If we look into India, it is observed that with proper initiatives of corporates, there are lot of development occurs within women and especially rural women (Narayan, 2003). Corporate are engaging them by giving support to financial and social inclusiveness for women development (Sarkar & Singh, 2013). Women empowerment can be defined as development of status of women in economic, social, political and technological. It helps them equal power and position in the society and family. Most of the organization are trying to find out real problem faced by women in society, family and corporate and thereafter design their process to empower and alleviate in connection with their problem (Babu & Sahay, 2018). Corporate social responsibility was trying to bring changes in the society. Corporate start their duties to accept and recognize social problems and find out a solution to mitigate those problem (Srivastava et al., 2012). In India, CSR was not very old concept but in 2013 onwards government make it a compulsory duties for all corporate to address some social issues by providing support to the society. Most of the cases, it observed that corporate, government and NGO joining their hands to provide support to the poorer section of the society and develop their skills, expertise

G. Patra (*) · P. Bose Department of Management, School of Business & Economics, Adamas University, Kolkata, India © The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 N. Mansour, L. M. Bujosa Vadell (eds.), Finance, Law, and the Crisis of COVID-19, Contributions to Management Science, https://doi.org/10.1007/978-3-030-89416-0_2

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to make them self-sufficient and it initiate social changes and socio-economic development of the country (Mitra et al., 2018). In recent time, it has noticed that corporate emphasis on women development and trying to empower them by providing them economic support through various financial inclusion programs (Holloway et al., 2017), Which make a women more confidence in the way of living by earing something and contributing some economic support to their family. There are lot of debates on women empowerment, someone define it is nothing but development of self-confidence, self-esteem, selfempowerment of the women (Beteta, 2006, Mason, 2005; Swain & Wallentin, 2009). There are so many organizations that constantly support for the rural women for their development purpose. One of the major initiatives supported by government, NGO and corporates is the formation of SHG in rural areas which mainly design for women development (Abraham, 2013). CSR deals with social responsibility towards underprivileged part of the society, and focusing on the women’s workforce is a key area. The corporate world now recognizes women in every area in which it functions. The corporate sector has displayed praiseworthy initiative for women’s development such as providing employment, involvement in company management, share in the ownership, as a professional, suppliers, customers, dealers and in the local community. Therefore, the involvement of the corporate sector in women’s empowerment through CSR activities is well established and documented (Shettar, 2015). India is country followed diversified structure. We find lot of classes of people belongs from different section of the society. In a 1.38 billionaire population, more than 60 percent people live in rural segment, who does not have proper skills, education, training and finance and once time was there where they were been neglected from all benefits enjoyed by the urban and semi urban classes of society (Mitra, 2014, 2015; Mitra & Schmidpeter, 2016). Corporate social responsibility mainly targeted to those people and constantly working for them by providing training, support, education and finance to make themselves independent. Rural women were getting special emphasis on that. It has reduces lower poverty rate of India in every classes of people in rural as well as urban side (Panagariya & Mukim, 2014). If we look into the spending level of corporate, it clearly signifies the growth of rural economic development especially for women and now lot of initiatives taken by women in terms contributing to the society and family. Through CSR, poor section of the society gets opportunities to expose themselves with the mainstream of the society (O’Sullivan, 1997). When rural people grow in a significant manner, it reduces the inequity of society and growth of country enhance. In India, legal measures are the major diver of CSR activities. These mostly pertain to women’s empowerment, sustainable development, environment conservation, health, safety and education amongst others. For women empowerment in India, there have been several examples where CSR activities have brought serious changes in the society (https://www.wbcsd.org). It is being noted that corporates are giving more emphasis towards women to make them economical independents and providing support through training. Corporates put their effort in various ways to improve the status of women by generating income and employment. One most

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effective mechanism followed by corporate and government is development of SelfHelp group, It is an informal association within group of women (around 10–20 women and some case 40) belonging to poorer strata of the society having similar kind of socio-economic background (Son, 2013, Venkataraman & Venkata, 2005). It is an approach towards creating and enhancing women income and decent livelihood opportunities. To improve the women empowerment in rural India SHG and micro credit system support get a huge demand. It reflected very clear picture of women development (Kabeer, 2001). SHG with microenterprise provide support to women for their economic empowerment and put them in the mainland of the society. With the help of this rural women do lot of works like preparing and packaging the product (like jam, jelly, papad etc), milling of grains, craftsman, making of handicraft product (Chiranjeevulu, 2003; Choudhury, 2001). It make them self-employed and develop their economic and social, political empowerment. Not only that corporate through CSR activities provide training with new equipment and its operations which make them technologically empower. The SHG also enhance their support to the women to take credit as and when required and train them to do the investment in agriculture and allied business which is mostly common of rural Indian women. The SHG member develops habit of saving, economic independence, self-confidence and additional employment (Choudary & Chitra, 2012). From the above discussion, we can conclude that CSR and its initiatives not only limited to provide support in education, health, infrastructure and development of poor section of the society. In the same way they put up their eyes on women development by providing them training and financial support. They do lot of activities for women through SHG development. The present study is an attempt taken by the researcher to identify the women empowerment initiatives with the help of SHG of a particular district of west Bengal.

2 Literature Review Corporate social responsibility is the backbone of women’s empowerment and converts the women in mainstream of the society. There are so many corporate invest their significant amount of money for women empowerment, it is a part of their CSR activities. The reflection of women empowerment is associated with the development of women by economic, social, political and technological, and psychological (Malhotra et al., 2002), Corporate through their CSR scheme empower women by providing supporting financial inclusion looking into geographic and region specific because support and progress differs within country and locality. Government also promote women through National policy for empowerment of Women (2001) and develop an environment to empower women to enable them with full potential through economic and social policies. They also support the self-help group (SHG) and micro-credit mechanism for proving financial support to the poorer women of the country. It also noted that legal support make women confident in their way of working (Schuler et al., 2010). Presently lot of business houses and NGO as

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well as government promoting for more formation of SHG and giving financial support like loans and other forms of credit in a subsidise way. SHG also a platforms where women can develop their ideas on other issues like health, education, family planning etc. (Rao, 2011). Women empowerment not within the boundary of economic and social support apart from that it develops self-confidence and esteem to the women where they can take part in household decision making, family planning and citizenship behaviour like in political involvement (Garikipati, 2008; Schuler et al., 2010; Swain & Wallentin, 2007). In recent time it is observed that to empower women, Indian banking sectors took lot of initiatives through their CSR activities and contributing significant money towards various scheme of empowerment of society like support in health, education, biodiversity production, financial support to women, social awareness (Padmasree, 2016). The above discussion made us clear that women empowerment through CSR is a regular practices adopted by corporate. On the other side it helps them to develop their brand image, reputation, profitability, customer loyalty (Fraedrich & Ferrell, 2008; Friday, 2015).and develop a faith within the mind of shareholder and publics. On the other side activities of women empowerment process is rapidly growing. It not only enhance corporate image, it also develop countries economic growth, increasing worker participation of women and maintain equality system in the society (Saritha, 2007, Sarkar, 2004). The present study is an attempt to judge the above concept in a region of West Bengal.

3 Corporate Social Responsibility and Women’s Empowerment Corporate social responsibility is a medium of corporates to contribute their part of profit for socio-economic development of the poorer section of the society. From 2013, it is mentor disclosures of the corporate and now corporate are investing with their full energy for development of society. Women empowerment is a part of CSR which is supported by the organization like formation of SHG and micro-credit mechanism. SHG promote entrepreneurial activities, development of small business and generate healthy income of poor family. In the below table we have given some example of CSR activities performed by corporate for women empowerment. The data has been retrieved from https://csrbox.org/Top-Women-Empowerment-csrprojects-in-india (Table 1).

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Table 1 CSR actions related to women empowerment in India: FY 2019–2020 Project cost (2019–2020) 53.40 Crore

Project Name Project Shakti

Funding organization Hindustan Unilever Ltd

Women empowerment program

ITC

16.72 Crore

Social and Economic Welfare

Bajaj Finance Limited

16.14 Crore

Livelihoods for Women and skill development

Housing Development Finance Corporation Limited (HDFC)

15.68 Crore

Vocational skill development program Project salon

Tata steel ltd

12.24 Crore

Godrej Consumer Products Ltd Hindustan Zinc Ltd

8.70 Crore

Community & development ltd

UPL Ltd

4.78 Crore

Indigo Shakti program

Inter globe aviation ltd

4.13 Crore

Project M Powered

Tata communication Ltd

2.61 Crore

Shakti

4.98 Crore

Activities “Give financial support to women and provide livelihood opportunities to women in rural India” “Employment opportunities to poor women supported with capacity building and financial help by loans and grants” “Contribution to different projects, such as education, Woman empowerment, Environment, Healthcare, Homes and hostels for orphans and special education” “Provide fund for skill development and livelihood enhancement programmes for women and construction workers” “Contribution related to employment of women and differently abled” Trained 9000 women “Mobilizing rural women into selfhelp groups (SHGs) and developing their capacities around leadership, skill development, savings and entrepreneurship” “Development Support to community around UPL locations. Focused initiatives are Suraksha Abhiyaan, UPL School Sanitation, Support to Seva Yagna Samiti” “Developing women entrepreneur, impacting tribal communities in Assam Meghalaya boarder” “Sustainable livelihoods programmes to empower 1800 ultra-poor women in Orissa and Jharkhand, through smartphone based livelihoods training”

https://csrbox.org/Top-Women-Empowerment-csr-projects-in-india

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4 The Objectives of the Study Are Based on several discussions in the phase of introduction and literature review, present study is an attempt to judge the predefined concept and thought (adopted from Singh and Bhatia (2019) and Banerjee and Ghosh (2012) in a particular district of west Bengal, i.e. North 24 Parganas in West Bengal. a. To discuss the role of corporate social responsibility towards women empowerment in current context. b. To assess the status of women’s empowerment in relation to economic, political, social, technology and other determinants. c. To scrutinize the status of women’s empowerment in various dimensions.

5 Methodology This study attempts to explore the concept of corporate social responsibility adopted by Indian companies and how corporates are using their CSR policy for women’s development. We collected part of the data from Indian companies using their published reports. For the second part, we collected data from various parts of North 24 Parganas district of West Bengal. We analyzed collected data using statistical tools to judge the initiatives take by the corporates responsibility and its relations with women empowerment. From the study, it made us clear that there are a lot of initiatives taken by the corporate for empowering women by providing help and support. To verify this, in the present study we have considered few blocks of North 24 Parganas in west Bengal and try to investigate the development of women in terms of economic empowerment, social empowerment, political empowerment and few other variables which can help us to find out the real scenario of women empowerment through CSR activities. For the study we have interacted with 200 women in different blocks by using purposive sampling and asking limited questions which are based on their activities in connection with CSR. All are rural base and associate with SHGs. Major factors to consider here are earning and saving, credit and repayment of loans, income and distribution, gender discrimination and working facilitation, social status, resource mobilization, decision-making capacity, education facility, involvement their initiatives in political discussion and some other factors. We have collected the data using five-point Likert scales to judge the important determinants or variable play an important role for empowering women. For understanding various dimension of women empowerment, we simply ask them few questions and counted their responses. The data mainly collected with the aspect of political empowerment (Niemi et al., 1991 and Boley et al. (2016), social empowerment (Basu, 2006) and economic empowerment (Raj et al., 2018; Postmus et al. (2013) and Basu (2006). We have considered other items from reviewing the literature by the researchers. We have adopted the logic and components of factor analysis from a study conducted by Singh and Bhatia (2019). We have collected the

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data during Covid period from February to April 2021 when we met these areas for some CSR activities organized by institute. The researcher went to different block with NGO for CSR program for supporting rural people and collected the data. Data analysis employed calculating simple percentages and factor analysis was used to identify impact of different empowerment factors.

6 Analysis and Interpretation The above demographic responses were taken before proceed into the detail discussion. From the above data, CSR activities done by the corporate to empower women in various parts of west Bengal, women in these districts also get opportunities to develop themselves and started a lot of initiatives to make them earners and be an independent citizen in the society (Table 2). The next part of our investigation was trying to examine the components which make a significant impact for women empowerment. The study also tries to identify the factor which gives us a significant sign of women’s empowerment through CSR. The output shown in the Table 3 explains the Eigenvalues and the cumulative percentage of the variance. From the above table we find there are 6 variables whose Eigen value is more than 1. We took the factors which have Eigen value over 1 into consideration. In our study we see from the above table that six factors extracted together account for 88.61 percent of the total variance (information in the original twenty variables, Table 3). The extracted components explain nearly 88.61% of the Table 2 Demographic classification of the respondents

Percentage Educational Profile No formal education Education below matriculation Matriculation and HS Technical course / skill development course Graduation Work engagement Nursing Tailoring Fashion designing Driving Data entry operator Livestock care & management Others Employment type Full time Part time Daily basis

31 22 25 20 2 11 10 8 5 21 28 17 43 35 22

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Table 3 Total variance explained by the variables in Factor analysis Component 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Initial Eigenvalues Total % of Variance 7.035 35.175 4.315 21.572 2.683 13.417 2.016 10.081 1.053 5.263 1.020 3.107 0.540 2.701 0.413 2.064 0.290 1.450 0.184 0.918 0.165 0.825 0.134 0.672 0.125 0.623 0.104 0.518 0.086 0.431 0.072 0.360 0.067 0.333 0.041 0.203 0.032 0.161 0.025 0.126

Cumulative % 35.175 56.747 70.164 80.245 85.508 88.615 91.316 93.380 94.830 95.748 96.573 97.245 97.868 98.386 98.817 99.176 99.509 99.712 99.874 100.000

Rotation Sums of Squared Loadings Total % of Variance Cumulative % 5.573 27.864 27.864 3.412 17.062 44.926 3.111 15.554 60.480 2.160 10.798 71.278 1.903 9.515 80.793 1.565 7.822 88.615

variability in the original twenty variables, so we can considerably reduce the complexity of the data set by using these components, with only an 11.38% loss of information (Table 4). Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. Rotation converged in 8 iterations. The factor loadings, also called component loadings in PCA, are the correlation coefficients (Table 5). There are 20 variable considered for understanding the impact of corporate social responsibility spread through government and non-government organization across India. In west Bengal we have also observed that with private organization, state government also taken a lot of initiative to promote women’s empowerment through various social programs. Looking into this fact, the present study was trying to find out the empowerment of women in economic, social, political, technological and empowerment to maintain a healthy life in societies. The factor analysis clearly hints that there are four important variables come out from the research which has highest positive factor loading and the variables strongly linked to economic empowerment of the women in this district. We can state that women are very conscious regarding earning and expenditure and they are keeping money to their future certainty and also take part in income generation.

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Table 4 Rotated Component Matrix Variables VAR00001 VAR00002 VAR00003 VAR00004 VAR00005 VAR00006 VAR00007 VAR00008 VAR00009 VAR00010 VAR00011 VAR00012 VAR00013 VAR00014 VAR00015 VAR00016 VAR00017 VAR00018 VAR00019 VAR00020

Component 1 0.003 0.152 0.208 0.498 0.492 0.802 0.095 0.856 0.917 0.010 0.136 0.129 0.002 0.478 0.684 0.209 0.162 0.108 0.429 0.429

2

3 0.061 0.022 0.224 0.403 0.761 0.048 0.672 0.061 0.111 0.050 0.273 0.862 0.086 0.053 0.462 0.486 0.766 0.289 0.248 0.202

4 0.063 0.936 0.848 0.341 0.247 0.048 0.273 0.082 0.099 0.195 0.252 0.119 0.956 0.125 0.041 0.174 0.218 0.186 0.264 0.164

5 0.145 0.039 0.180 0.616 0.047 0.317 0.250 0.318 0.070 0.887 0.075 0.085 0.095 0.650 0.374 0.163 0.159 0.857 0.026 0.387

6 0.318 0.068 0.238 0.005 0.179 0.349 0.455 0.153 0.072 0.282 0.799 0.164 0.050 0.176 0.026 0.009 0.139 0.215 0.766 0.584

0.905 0.077 0.001 0.116 0.054 0.179 0.107 0.177 0.037 0.204 0.301 0.018 0.060 0.229 0.056 0.742 0.238 0.054 0.135 0.382

Table 5 Factor-1 & 2 Components matrix Economic empowerment

Social empowerment

Variables Monthly saving Credit repayment capacity Generate future income Participate in family investment planning Part in family decision making process Working freedom Working autonomy Maintaining social relationship

Factor loading 0.802 0.856 0.917 0.498 0.761 0.672 0.862 0.766

Survey data, model adopted from Singh and Bhatia (2019)

On the same line the study also confirms that there are certain variable of Factor2, carry highest factor loading and these are family decision making (0.761), working freedom (0.672), status improvement (0.862) and maintaining social relationship (0.766) and the inner thought of these variables are social empowerment. We have a lot of gender discrimination and women may not work and move freely. But because of CSR initiatives and providing more facilities to women, women are coming out from such boundaries (Table 6).

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Table 6 Factors-3 & 4 components matrix

Political empowerment

Technological empowerment

Factor-5 Factor-6

Variables Knowledge of parties operating in the area

Factor loading 0.936

Vote make difference to development in my area Participate in political discussion in family Allow to learn modern training skills

0.848 0.956 0.616

Support to work with new technology Encourage to participate different technical program conducted in the locality Access to education Access to employment Exposure to media

0.887 0.857 0.799 0.905 0.742

Survey data, model adopted from Singh and Bhatia (2019)

There are a lot of programs and events done by the corporate to promote women and motivate them in the same fashion as other people in the society. It is not only confined to economic and social development. In today’s world we found a lot of initiatives taken by the women to make them familiar with technology uses, political information and in the areas of employment and education. It was quite an inaccessible job for the women and they could not take part in the decision-making process in these areas. As we have seen that there are a lot of initiatives taken by the government and non-government to improve women interference in these areas through formation of some groups with the help of SHG to promote women participation in all around. The above result shows a strong positive factor loading of the three components like Knowledge of parties operating in the area (0.936), Vote make difference to development in their areas (0.848) and take part in political discussion in family (0.956) and these all factors are strongly shows women involvement in political boundaries. In the same fashion we found women are increasing their participation for learning and operating with technology and once it was unimaginable for the rural women but in the current context, it has improved a lot. In the factor 5 and 6, we can state that women’s participation in education and employment are increasing in a faster way. There are a lot of clusters developed by the company to rural areas and empowering women to do part time or full-time job from home, guiding them and providing support in education. Table 7 brings out some interesting features. We asked few questions women to understand their involvement in different criteria of women’s empowerment. The result shows that there are few areas women cannot take free decision and still they depend on their husband. There is more involvement required in giving support to women by providing skills and empower traits which may make them more confident.

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Table 7 Dimension of women empowerment and response pattern Dimension of women empowerment Couple interaction

Political awareness

Decision making capacity

Freedom of movement Self esteem

Questions Do you carry equal power and role like your husband in family? Do you take family decision making without your husband involve? Do you know which political party in the state and your locality? Can you cast your vote at your own will? Can you spend your income as you like? Do you have buying freedom in your family? Do you take decision for your children matters like education, health etc.? Do you feel free to work in the SHG in your locality? Do you fell self-reliant after join in selfhelp group? Do you feel yourself independent after joining SHG?

No of respondents reply Yes 130 (65%)

No of respondents reply No 70 (35%)

90 (45%)

110 (55%)

170 (85%)

30 (15%)

180 (90%)

20 (10%)

130 (65%)

70 (35%)

150 (75%)

50 (25%)

120 (60%)

80 (40%)

130 (65%)

70 (35%)

110 (55%)

90 (45%)

140 (70%)

60 (30%)

Model adopted from Banerjee and Ghosh (2012)

7 Discussion and Conclusions Self- help group and micro credit mechanism is now act as very popular method of women empower. Corporates, Government and NGO are constantly monitoring and supporting the women through the various programs. In west Bengal more than 700,000 SHG are operating in various capacity. We also observed significant development of women in terms of social, economic and other empowerment (Desmukh, 2005). There are lot of researches going on in the areas of smooth functions of SHG and its impact towards women empowerment. West Bengal government introduced various scheme for giving financial support to the women in this regards. The study indicates that in this particular district where CSR activities implemented in root level and it reaches to different parts. From the survey of 200 sample data, we observed that there are significant improvements of women participation in varieties program offered by companies and government through their CSR activities. The result of factor analysis signifies that women are more empower towards social, economic, political and technological dimension. We also noted from the result that freedom and decision making capacity improve of the women specially living rural areas. It is a positive sign of implementation of CSR activities for the empowerment of rural women.

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8 Practical Implications of the Study This study provides us with an extensive understanding of women’s empowerment and the role of corporate social responsibility for its enhancement. The study is limited to specific districts with 5 blocks and only considers the married women who are members of self-help groups but there are a lot of rural women who are not members of SHG and they lack exposure to such CSR activities provided by the organization. This study will help government and corporate to design their CSR activities in better way and it can also help those to use the trained people for their own use and companies can engage themselves in different works which may be more beneficial to run their business and make a strong goodwill in the market.

9 Scope for Future Research The study is an attempt taken by the researcher to understand the corporate social responsibility initiatives towards women empowerment and the performance of Self Help Group to support women and make them equal status in the society. This study is limited to a particular district of west Bengal. So there is ample scope for future study covering various part of west Bengal and considering other instrument which can be the driver of women empowerment. Further study also possible the importance of different scheme of CSR in different place which can help corporate to be more focus looking into various issues of the society.

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Raj, A., Silverman, J. G., Klugman, J., Saggurti, N., Donta, B., & Shakya, H. B. (2018). Longitudinal analysis of the impact of economic empowerment on risk for intimate partner violence among married women in Rural Maharashtra, India. Social Science & Medicine, 196, 197–203. Rao, B. M. (2011). Education for women empowerment and economic development. IJRCMT, 1, 17–18. Saritha, R. (2007). Women entrepreneurship: Problem and need for environmental alterations India. Economic Empowerment of Women. Sarkar, D. K. (2004). Women’s empowerment, good-governance and decentralization: Assuring women’s participation in panchayats of two backward districts of Northern Part of West Bengal. (Research Report), Financial Support from Department of Women and Child Development (F. No. 1–2/2004—Research) Ministry of Human Resource Development Government of India. Sarkar, S., & Singh, P. (2013). Corporate social responsibility: A way towards women empowerment. International Journal for Management Research, 4, 32–46. Schuler, S. R., Islam, F., & Rottach, E. (2010). Women’s empowerment revisited: A case study from Bangladesh. Development in Practice, 20(7), 840–854. Shettar, R. M. (2015). A study on issues and challenges of women empowerment in India. IOSR Journal of Business and Management, 17(4), 13–19. https://doi.org/10.9790/487X-17411319 Singh, S., & Bhatia, S. (2019). Empowering women through financial inclusion: A study of urban slum. VIKALPA-The Journal for Decision Makers, 44(4), 182–197. https://doi.org/10.1177/ 0256090919897809 Son, H. H. (2013). Inequality of human opportunities in developing Asia. Asian Development Review, 30(2), 110–130. https://think-asia.org/bitstream/handle/ Srivastava, A. K., Negi, G., Mishra, V., & Pandey, S. (2012). Corporate social responsibility: A case study of TATA group. IOSR Journal of Business and Management, 3(5), 17–27. Swain, R. B., & Wallentin, F. Y. (2007). Does microfinance empower women? Evidence from selfhelp groups in India. Working Paper No. 2007:24. Department of Economics, Uppsala University. Swain, R. B., & Wallentin, F. Y. (2009). Does microfinance empower women? Evidence from selfhelp groups in India. International Review of Applied Economics, 23(5), 541–556. Venkataraman, & Venkata, R. (2005). Empowerment of women in India: A review of women’s SHGs movement in India. Retrieve from IOSR Journal of Business and Management, 17(4), 13–19. https://doi.org/10.9790/487X-17411319

The Financial Sphere in the Era of Covid-19: Trends and Perspectives of Artificial Intelligence Hanane Allioui and Azzeddine Allioui

1 Introduction The Covid-19 health crisis continues to have a negative impact on households, businesses, and financial markets. In this context, scientific research is advocating for a framework that can cushion and compensate for its effects in future health, financial or industrial crises. Therefore, among the techniques that can remedy and find solutions to the problems of financial markets and financial decisions, making more generally is using advanced AI-based tools and systems. In recent years, AI advances have led to promising results in many fields. It is becoming possible to predict, anticipate or optimize behaviors or business processes, endowing a system with learning, reasoning, and decision-making capabilities. Thus, AI can contribute to asset management ranging from portfolio management to investment decisions while taking into account compliance and risks. However, the term asset management (AM) is used in very different ways depending on the field of use. In fact, in finance, GDA consists in making its clients’ assets prosper through investment, by respecting regulatory and contractual obligations, and by applying investment strategies to obtain the best possible return according to the chosen risk. Recently, countless start-ups have growing interests to implement and promote advanced applications, which can monetize the current potentials aspects, to mixture the industrial revolution and the gold rush (i.e.: transportation, delivery, housing, commercial, financing, repairing, etc.) for better profit-making services. For

H. Allioui Cadi Ayyad University, Marrakesh, Morocco A. Allioui (*) ESCA Ecole de Management, Casablanca, Morocco e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 N. Mansour, L. M. Bujosa Vadell (eds.), Finance, Law, and the Crisis of COVID-19, Contributions to Management Science, https://doi.org/10.1007/978-3-030-89416-0_3

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instance, It has become easier for individuals having smart cell phones to create or offer services to earn money, negotiating out their income, or enhancing their social allowance (Bauwens, 2015). Furthermore, sharing a private lifestyle (clothes, cars, houses, . . .) has become a way to generate outcomes. This private or social revolution triggers various questions regarding the relation “individual/worker”, “platform/ employer”, “citizen/society”, and the profits or taxes. These questions aim to analyze the market competition and monopoly, the funding of social models, the territorial growth, also both individual and shared responsibilities. All these elements form the basis of a novel and innovative economy as well as a new global market. This emerging reality seems still preposterous regarding effective collaborations, digital adoption, data sharing, etc. The use of technology has always impacted the market, however, given the technological advances of the twenty-first century, the current evolution has mostly not been noticed in the statistics’ studies. However, it is quite difficult to detect the real impact of these technologies and innovations given the nature of digital assets as well as the evolving needs of development. Current metrics are not yet adequate to measure the impact of artificial intelligence-based systems, to identify the added value of the presented services, and to define target models to ensure technological evolution (Open Society Foundation, 2015). For all these elements, this study aims essentially to analyze AI importance, also the AI solutions proposed to the financial decision in moments of crisis. To answer this objective, we will proceed with a review and mapping of IA to address the impacts of COVID on financial markets and corporate financial decisionmaking. First, we will discuss a systemic and detailed literature review. Then, we will discuss the potentialities of IA during COVID-19, and its importance in innovation processes that can strengthen the position of companies and markets in the face of the crisis. And finally, we will discuss and conclude with recommendations and perspectives for future research.

2 Theoretical and Practical Backgrounds 2.1

Advances in Artificial Intelligence in Finance and Economics

Understanding the emergence of these economic advances is not trivial. Some researchers consider these advances as a trendy evolution, certainly fast, but not as world-shattering as the evolutions of the nineteenth century i.e.: the electricity or running water generalization. Since their emergence, these innovations have changed our daily life, so that only a few of today’s technologies have been able to impact economic growth, for example, smart sensors, robots, 3D printers, etc. Compared to the importance of water and electricity, these technologies are

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considered mere gadgets (Cowen, 2011; Gordon, 2014). Others, consider these advances an agitator breaking the traditional organization model of companies. As a part of physical or human capital, the technologies are used to ensure the creation of more value optimizing inputs as well as resources. Similarly, the technological migration of old practices, skills, and organizational processes remains a laborious and disruptive task for economic progress (Manyika et al., 2013). According to Schumpeter’s (1942), this would mean that is vital to get rid of the old models to be able to adopt new paradigms and technologies of production, management, etc. The adoption of new technologies guarantees absolute optimization with zero marginal cost (Rifkin, 2014; Babinet, 2015). For instance, to optimize society, and enhance rational governance, Big Data offers strong tools with no errors or wastes. Big Data would contribute to an optimized society and rational governance, without management errors or waste. These promising technologies are transforming our daily life, studies, business, researches as well as the global economy (Manyika et al., 2013). According to Babinet, humans are moving from an energy-based society to a data-based society. For the workplace, therefore, it is not only required to adopt the new digital trends or finance new skills development projects (European Commission, 2015), but to establish a new advanced workplace with new evolving directions and regulations (Kowalski, 2015). Also, in the service sector, the change affects the work processes of service providers, calculation algorithms, contracts, negotiation methods, etc. Also, in the industrial sector, changes affect production methods, interactions, monitoring and control modes, etc.

2.2

Financial Markets: The Example of High-Frequency Trading

Developing derivative products, mathematizing trading rooms, and increasing search for time savings have contributed to the vertiginous growth of high-frequency trading (HFT), which denotes about half of all financial market trades. In a changing time-space, algorithms are the lifeblood of the business: from the decision to execution, ubiquitous automation now makes it possible to place and cancel an order in just a few microseconds. In 2015, France’s Financial Markets Authority (AMF) supplied a sanction against Euronext and THF company Madison Tyler and reminded us of the importance of respecting market integrity. However, algorithmic trading, which is now well established in the financial markets, is not necessarily

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manipulative; it remains under close observation by regulators. In 2017, AMF published a description of HFT behavior on the Euronext equity market (AMF, 2017a). While these technologies pose challenges for regulators, new artificial intelligence-based surveillance tools also make it easier for financial players to identify suspicious trading patterns or automate messaging monitoring and analysis.

2.3

The Management Industry, New Opportunities

Globally, for companies, adopting digital transformations remains a challenge and also an important opportunity that may enhance their positions (Association française de la gestion financière (AFG), 2017). For that AI and Big Data techniques are used to renovate their production, distribution, and cost models. They offer them the ability to process the numerous data available, structured or not, textual, visual, or sound. They can more easily provide original analysis angles, new macroeconomic indicators, better forecasting of companies’ commercial successes or sectoral economic cycles thanks to the analysis of consumers’ appreciations and the diffusion of trends by influencers. Improved knowledge of clients’ fund liabilities would allow for sharper management of their ALM (Asset Liability Management). The risks management linked to systemic behavior would be clarified. Investment strategies, refined and diversified, can capture growth sources and predict reversal risks. These opportunities require intellectual investment, strong data safety, and customer prevalence to determine the right course of action for these future transformations.

2.4

Marketing Financial Solutions: What Are the Possible Applications of Artificial Intelligence (AI)?

• Robo-advisors In asset management, robot-advisors offer a simplified client experience, a better client/product match, and at lower costs. Their model is based on an uberization model, with shortened customer paths. They have focused on meeting the new needs of financial consumers, which are simplicity, ubiquity, and availability. They offer customer profiling and performance simulators based on technologies that are more or less complex, but ultimately not very disruptive. It is their marketing model that has created the disruption. Robo-advisors can thus be substituted for human advice, or complement it.

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• Retail banking between administrative automation and advisory support The retail bank, the interface between the customer and a broad insurance and financial banking offer, has grasped the considerable stakes of its participation in the transformation of the financial landscape by investing in artificial intelligence tools. Bankers plan to make it the main vector of their customer interaction (Accenture, 2017). The projects concern the automation of recurring and time-consuming tasks. Semantic analysis is used in particular for the proofreading of contracts or translations. As far as complaints are concerned, the tool processes the request while identifying the claimant’s state of mind to guide him/her in the best possible way. These techniques, which can be likened to machine learning (or deep learning) tools, require access to a large amount of data, and the construction of knowledge databases for learning. This requires developed and stable information systems with experienced data management. Another application in full development: intelligent robots at the service of bank advisors (Le Monde Économie, 2017) for efficient email management and improvement of proposed savings solutions. “Mystery visits” conducted by the AMF since 2010 have observed that the discovery of customer profiles (financial situation, knowledge, and experience of financial products, risk appetite, objectives) by their advisors is insufficient. Products are too often presented in an unbalanced manner and fees are not well explained, the technicality of advisors can be improved. The implementation of advisory support tools should contribute to improved traceability and quality of their recommendations. This issue affects all stakeholders (traditional or purely digital). Several AI applications (multi-agent systems, natural language processing, machine learning, visual processing, robotics, etc.) are speedily changing the adopted devices, techniques and tools, in customer relations. Thus, in addition to traditional relationship channels (email, telephone), many players are now using conversational tools based on chatbots, voice or visual recognition, or interactive voice servers. Profiling, categorization of the request, communication adapted to the typology of the customer (Millenials, vulnerable populations), the robotization of consumer relations is experienced as a real break from a traditionally procedural environment with socio-economic consequences to be taken into account (Challenges, 2017).

2.5

Artificial Intelligence, a Subject for Regulators

• The contributions of the MiFID 2 directive The entry into force in January 2018 of the MiFID 2 directive (updating the MiFID “Markets in Financial Instruments” directive in France will profoundly reorganize the structure of markets and the client relationship of investment service providers.

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• Algorithmic trading In line with the respect for market integrity, MiFID 2 includes several provisions designed to prevent the risks associated with algorithmic trading. From now on, high-frequency traders will have to be able to notify the authorities of their use of automated processes, test the algorithms they use and keep a record of orders placed. The directive also pushes for regulation of market-making activity, trading platform fee structures, and co-location services to ensure transparency and greater fairness in the markets. • Putting the end customer back at the heart of the marketing process Dedicated to investor protection, one of the three parts of the European directive will strengthen the processes of client knowledge, distribution channels, and order execution. On the one hand, this directive provides a framework for changes in marketing practices, and instead, it contributes to growing the use of digital skills by financial managers. The “product governance” mechanism (AMF, 2017b) consists of defining precisely the division of responsibilities between producers and distributors in defining products, adapting them to customer needs, and choosing the appropriate distribution channel. Any provision of an investment service requires prior verification of the product’s correctness concerned to the client’s profile. MiFID2 extends the KYC (Know Your Customer) process by taking into account the client’s capacity to suffer financial losses, measuring his risk tolerance, and defining the objectives of his investment. The use of digital technology raises the question of how users notice the questions. Tests have to avoid negative biases to warrant customer safety and a proper understanding of offers. Provisions complete the framework of ex-post marketing with the obligation to provide a record of the service upon complaint by the client. The investment service provider must be able to prove “best execution”, i.e. the best probable outcome when completing a client order. • Changes in AMF principle The AMF has positioned itself to monitor some negative externalities observed through digitization. For KYC practices, it is up to investment services providers to remain vigilant about the risks of automating client verifications and drifting their platform towards a “gamification” that brings it closer to video games. In 2017, the AMF also amended its General Regulation and published a recommendation for players offering performance simulations. Regulatory inputs better define the contours of technological possibilities while driving their use by financial intermediaries to meet increasing compliance requirements (with the rise of RegTechs). • Challenges triggered by Artificial Intelligence Nowadays, AI is present in our daily lives: voice or facial recognition, SIG, medical diagnosis, . . . In 2017, it is becoming part of the financial services

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landscape, with strong media coverage. This technology attracts researchers, industrials, professionals, . . . However, it raises fears: isn’t there a risk that this tool will overtake man and dominate him, trigger major stock market crises (via THF), pierce the secrets of human intimate lives by analyzing personal data, and/or hugely destroy jobs? • Using artificial intelligence, an intention, and a framework The implementation of AI is part of a company’s strategic intention. Its particularly innovative character requires that we set the framework and that we integrate respect and protection of people. The objective is not to ask AI what the users want, but to understand their instructions (Dietterich & Horvitz, 2015). Acceptance by all stakeholders (customers, employees) must guide the explicitness of this framework and ensure its transparency. This is the conviction of many researchers. • Artificial intelligence, a system under surveillance, with continuous governance Learning-based systems, learn then create guidelines that may be automatically applied. They are based on underlying assumptions that must be identified, made explicit, and discussed collegially: failure, discrimination, financial exclusion, inequity of treatment, etc. The quality process has to overcome the unexpected information challenge, that can create inadequate results. This process is intrinsic to the system and allows for the management of the architectures and an advanced control level of the coherence between the framework and the results. One of the goals of AI is to reduce human error. A key issue is determining the key moments when the human analysis is required to deliver truly personalized advice. Behavioral finance has studied the different cognitive biases that consumers of financial products and services are subject to. Daniel Kahneman (Dietterich & Horvitz, 2015) described our two decision systems. Emotional, quick, and intuitive, System 1 operates in automatic mode. Reflective, calculating, and slower, System 2, on the other hand, requires mental effort. The AI reproduces the system. It is the one that naturally imposes itself during decision-making. Shouldn’t we anticipate breaks in the increasingly fluid interaction chains that address the customer? A crossreflection of these different academic fields would allow us to verify which cognitive biases these new artificial intelligence tools might lead to, and to correct them accordingly. Financial service providers are eventually entirely responsible for ensuring that their advice matches the profile and needs of the client. These new ecosystems offer real advantages (efficiency, structured assistance, increased and structured knowledge of advisors, etc.) and require enlightened management. Major challenges lie ahead in terms of human resources: the cultural transformation of the various players, training of algorithm designers in customer protection and behavioral finance, talent to be developed in terms of Data Analytics (DA)...

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• Artificial intelligence: the use of data Investors seduced by smoother customer journeys feed these tools with their data. These technologies are fond of it: the algorithms give all the more efficient results as the data increases in volume, is varied and circulates at a high speed, and as its consistency guarantees its veracity (these are the “Four V’s of Big Data”). Investors need to know who they are contracting with, what data is being used, by whom, and for what purpose.

3 The Potential Uses of AI Technologies during COVID-19 During the last decades, growing research interest in Artificial intelligence(AI) are reshaping the traditional organizational process steadily (Brynjolfsson, 2017; Von Krogh, 2018). This introduced the idea that smart techniques may replace human roles in workplaces. AI has proven its efficiency and the superiority of the results compared to human experts, despite some constraints in data processing (Agrawal et al., 2018; Bughin et al., 2018a). Inspired by human capabilities, AI techniques overcome traditional approaches in financial or business organizations, play an important role in the long-term survival process, and offer competitive advantages in the marketplace (Lengnick-Hall, 1992; Porter, 2001). At first glance, the vision of using AI in business seemed almost far-fetched (Amabile, 2019). Nevertheless, despite the drawbacks, rather the absurdity of AI, companies have started to consider the use of AI techniques in their processes to overcome the unexpected in changing and volatile environments, to have a good position in competitive global markets, to survive political, pandemic, and technological changes (Jones, 2016; O’Cass et al., 2018; Spieth, 2014). Thus, adopting AI techniques to ensure firms’ stability and scalability must be of considerable interest to managers. On the one hand, AI has strong potentials to increase the competitive environment as well as to monitor the rising amounts of data. Besides, using AI to support the current process, especially during COVID-19, could produce real value for companies and organizations decreasing both the costliness and the riskiness.

3.1

The Global Impact of COVID-19

As COVID-19 has been known for its fast transmission among the masses, it is considered a serious pandemic disease (Lai et al., 2020). According to WHO reports, precaution and distancing measures remain the best solutions to limit COVID-19 spread. The sudden appearance of this pandemic has put the governments in an unprecedented situation, which requires, mainly, the implementation of effective strategies to reduce the infections, to assure the sustainability of the pandemic situation, and to remedy unanimously the pandemic consequences influencing the global economy (as illustrated in Fig. 1).

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Fig. 1 The global effects of COVID-19 and AI adoption

As the COVID-19 pandemic caused complicated circumstances, a huge need has arisen for the use of intelligent technologies in various sectors (Elavarasan et al., 2020). The sudden arrival of COVID-19 triggered the need for smart solutions, requiring their adoption in a manner fast enough to provide alternative strategies (Javaid et al., 2020a; Kumar et al., 2020; Singh et al., 2020). Since the start of this pandemic, various technologies was introduces to handle several needs i.e.: robotics (European Parliament, 2020), artificial intelligence (AI) (Alsuliman et al., 2020; Nguyen, 2020), telehealth (STAT, 2020), drone (Enterprise DJI, 2020), and IoT (Stahie, 2020; O’Halloran, 2020), etc. Smart technologies have been widely used to analyze the huge amount of data for better decision-making to tackle the pandemic situation loads (Canitez et al., 2020). For that, the AI applications have strengthened the progress of significant strategic frameworks for detecting viruses, tracking their spread, analyzing the collected data, and enhancing the managerial direction processes to tackle the influence of COVID19 in business (OECD.AI, 2020). Moreover, Artificial Intelligence has encouraged people to enhance their abilities to learn and work autonomously in a short period and has offered advanced prediction, analysis, awareness solutions, as well as a strategic business process. To tackle and monitor the pandemic situation, governments are still exploring strong and efficient solutions based on AI. Recently, a deep learning model was adopted in China to speculate real-time circumstances in all the infected areas (Hu et al., 2020). Also, ‘α-Satellite’, which is an AI model, is adopted to analyze the probable infection spread in a given area (Ye et al., 2020). In Australia, the Australian Census-based Epidemic Model (ACEMod) (Zachreson et al., 2018; Cliff et al., 2018), was adapted and rectified for detecting the COVID-19 pandemic (Chang et al., 2020). AI adoption is more recommended for managing health

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systems as well as regulating protocols (Allam et al., 2020) The numerous speedy facts, in various countries, like death counts, public awareness, guest’s density, employees’ congestion, and demographic statistics are collected to evaluate the possible infection threats. In that context, an AI framework was proposed to screen COVID-19 infection (Maghdid et al., 2020). Also, various deep learning methods were adopted to analyze the obtaining data and diagnose disease symptoms (Karvekar, 2019; Roldán et al., 2019).

3.2

Potential AI Application Areas during COVID-19

During the COVID-19 crisis, Artificial Intelligence techniques are providing spectacular supports i.e.: quick detection, identification, classification, screening, and tracking patients. These AI techniques have been using several compute vision, IoT, and deep learning algorithms to determine insightful plans as shown in Table 1. AI technologies applications have been limited because of the lack of data (Javaid et al., 2020b). COVID-19 has accelerated AI adoption. However, for tracking and prediction, AI has not been entirely explored in many affected areas such as Africa, Table 1 Evolving technologies to tackle COVID-19 Emerging Smart technologies General AI approaches Virtual/augmented reality Internet of things

Blockchain

Additive manufacturing 5G technology Geographical information systems Social media platforms Big data analytics Autonomous robots

Important contributions Identifying, detection, quantifying, screening, tracking, and predicting. Specialized training, skills building, e-learning, audiovisual-based virtual communication, pain management, psychological disorders treatment, creating COVID-19 awareness, etc. Self-quarantine, self-screening, remote learning, remote healthcare, monitoring of COVID-19 spread, or patients, delivery, rapid diagnosis, technical support, health and social services such, etc. Accurate delivery of medication or food, e-commerce, integrating self-testing for patients in isolation, data verification, and validation, etc. Noncontact work, 3D scanning, 3D printing, personalized production, protective kits, etc. Great bandwidth, speedy data transmission, advanced video conferencing, advanced tools, tracking, remote monitoring, etc. Spatial mapping, regional level, contact-tracing, national and global monitoring, spatial, surveillance and control, etc. Awareness, reports, real-time updates, tracking people’s mobility, detection of fake news, etc. Real-time data, large scientific content, data storage, data processing, etc. Samples collection, social distancing control in crowded places, disinfection and sterilization, distribution of medical drugs, monitoring, delivering health equipment or food, etc.

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Europe, as well as South and North America (Wim, 2020). This is because of the nonexistence of important historical data to train AI models, and the use of forecasting models relying on noisy data, which produce unreliable models (Agbehadji et al., 2020). General AI approaches have faced the problem of limited access to data, which makes them fail to perceive asymptomatic COVID-19 cases (Sera et al., 2020) and impact the data quality and sharing (David, 2020). Specific emerging technologies have offered strong solutions during this pandemic period. The important cost of virtual-reality technologies and the lack of experts to customize the required virtual reality applications have been some of the main challenges that governments need to overcome. As for IoT approaches, which have often been questioned, they triggered standardization, privacy, and security issues, especially for heterogeneous network protocols. Another emerging smart technology, which has been in high demand, is Blockchain to deal with experience scalability problems. That highlights the importance of integrating Blockchain into healthcare systems and setting new international regulations and standards (Benny et al., 2020). Currently, additive manufacturing has become a must, which requires scalability potential in nonindustrial environments, and reduced costs. The same for 5G technology, it requires enormous investment injections to enhance the current bandwidth and latency. Besides, smart applications have to be used more often in several sectors especially, SIG and social media platforms. Looking at the financial situation and the decisions taken during COVID-19, it is obvious that China is the leader in implementing and adopting AI technologies to tackle the COVID-19 pandemic. Besides, other countries, that have suffered from a large number of infected cases, such as the US, Italy, India, and Brazil, have not successfully adopted AI techniques in fighting COVID-19 (Worldometers, 2020). COVID-19 is diagnosed in the majority of countries by RT–PCR test, which needs about 2 days for accurate results (Xueyan et al., 2020). For, the countries with great infection rates, it is required to use AI to diagnose, predict, analyze COVID-19 spread. Consequently, AI models are needed for COVID-19 early detection via chest computed tomography images, that can optimize PCR costs and radiologists’ time (Wang et al., 2020). Also, AI technologies are used for drug discovery and vaccine development (Abhimanyu et al., 2020). This possibly will generate huge benefits for health manufactories, policymakers, firms, and health care professionals (Raju et al., 2020). It is absolutely that advanced AI technologies are conceivably decreasing the burden of COVID-19, and introducing a new economic path that requires financial decisions, that take into account the benefits of investing in accelerated and expanded adoption of AI approaches for better short- and long-term decision making.

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AI Adoption Challenges

COVID-19 crisis has uncovered the weaknesses of the existing systems in different sectors. For that, using Artificial intelligence to combat this pandemic has raised various challenges. The specific nature of this pandemic involves strong and advanced solutions to set up a worldwide environment to overcome the pandemic situation impacts (Bardhan et al., 2020). Traditionally, health agencies, firms, educational structures, and stakeholders do not use the same data, systems, standards, or regulations. That limits the ability to pinpoint technological trends and to increase investments. All the structures and governments need connected and integrated systems to better understand and monitor the evolving pandemic changes and make effective decisions. The adoption of AI technologies faces several challenges as illustrated in Fig. 2. Some of the challenges can be summarized according to business and market measurement. Because of the COVID-19 pandemic, AI adoption is faced by the lack of regulations and financial crisis. The increased need for remote solutions and data sharing triggered several risk measures, more regulatory controls are needed, capital requirements have increased dramatically, which is an important complication because the needs of such a level of capital are very hard to encounter. AI assessments depend on the AI-skilled talent, the adopted models, and the estimated results. These AI solutions seem to be affected more by the current COVID-19 crisis. This highlights that the rightness of AI techniques, which are currently stipulated by people awareness, the security and privacy regulations, and the lack of funds need more investigation to adjust the weaknesses and set up a new generation of AI solutions that may be beneficial for people, societies and firms.

Fig. 2 The main challenges of AI adoption

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4 Artificial Intelligence to Enhance the Innovation Process Since COVID-19 appearance, it is obvious that healthcare, education, and financial systems are the most areas relatively affected by the disruptive pandemic changes, that are transforming all sectors. This transformational, not incremental, change identified the need for new and innovative options. In reality, leaders did not ignore these technology needs, but they did have a different set of priorities for managing a multitude of obstacles that existed before COVID-19. Ironically, now the AI priority seems to be the catalyst for enhancing several sectors. While abstract innovation processes and financial projects may have supported our current pandemic situation, more advanced processes are required to overcome the current as well as the pandemics. The global disruptions to educational institutions, the huge need for advanced healthcare systems, the industrial and economic chaos, and the societal confusion brought by the COVID-19 pandemic highlighted a strong need to establish new processes to support innovations that can remedy an unprecedented situation. The speediness and coverage of ingenious innovations developed and implemented to

Table 2 AI involvement in the innovation process

AI innovation challenges

Data processing constraints

Barriers routines

Innovation process Generating ideas • AI can build knowledge bases in a given domain to provide better solutions. • AI systems can study, analyze, and learn more problem contexts, opportunities, and threats to generate new ideas, and recognize similar ones. • AI systems need huge amounts of data for more creativity. • Data privacy, security, and integration • A good study of the current situation leads to strong future predictions. • Sharable knowledge bases and datasets are rare. • AI systems can recognize and create more creative/exploratory algorithms. • AI systems can study and recognize the opportunities and threats, during a pandemic situation, to generate new solutions.

Implementing ideas • AI algorithms can easily exploit knowledge bases and provide a suitable solution. • AI systems can percept, analyze and learn to deal with similar situations. • AI systems can identify and evaluate more data that can then be used to develop new solutions.

• AI systems can identify and evaluate more creative/exploratory ideas. • AI systems can automate the process and ensure a sustainable business environment. • AI predictions can ease decision-making and futures plans.

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tackle COVID-19 can change the world from different perspectives, as explained in Table 2. Currently, in the area of innovation development, AI systems are overcoming the data processing constraints of humans. Most AI systems are based on deep neural networks that can process huge amounts of data and provide strong results (Ng, 2017). With this feature, it is noticeable that AI systems can support humans to develop new ideas, or solutions by processing a vast amount of data for better investigations and studies. Indeed, AI technologies are generating considerable financial worth for businesses (Roose, 2019). Interesting AI applications are made across a very wide range of sectors to enhance firm development and improve innovation conditions. For example, AI was adopted for battery components and solar cells optimization (Charington, 2018), or other innovation process acceleration using machine learning to predict the most suitable material to assess so the process substantially could be speeded up (Tran et al., 2018). Also, interesting AI uses in pharmaceutical development and research offered important solutions (Mamoshina et al., 2016; Schuhmacher et al., 2020). In that context, AI systems can speed up the protein engineering process (Yang et al., 2019), which is important for better proteins discoveries for scientific, technological, and medical applications. These AI methods are interesting to researchers, industrials, and finance experts, in this area, to search deeply within the existing methods and invest in new promising solutions (Yang et al., 2019). Besides, during pandemic situations, AI systems can be used to recognize and classify the faced diseases as well as provide the possible treatments— for example, to eventually set out treatments able to end the malaria transmission, RNA genomics datasets were used for deep neural networks training (Johansen et al., 2018). Lastly, countless other sectors need AI techniques to enhance the development and the innovations process (Geyer-Klingeberg et al., 2018; Veit et al., 2018). Identifying, analyzing, and developing ideas and algorithms i.e.: using AI for new crew solutions (Rhodes, 2016). AI algorithms, that were based on the growth patterns according to mold and bones features, assisted the building of a new, more well-organized, and effective, but similarly steady crew partition. Even more interesting are AI applications that were presented to tackle the COVID-19 pandemic. These AI systems can generate novel solutions which, diverge from the existing systems. As data is the most treasured resource for the success of businesses institutions all over the world, Artificial intelligence has proved its position as the key factor to unlocking the COVID-19 pandemic effects. Data is playing a vigorous role to fight COVID-19 (infection progression, infected people, accelerating clinical treatments, optimizing resource allocation, enhancing researches and discoveries, and policymaking). Artificial intelligence has contributed to support and boost strategic decision-making. This help of AI, during the COVID-19 crisis, has taken numerous forms: • Communities have access to the newest statistics to observe and understand the pandemic progress and get information on prevention to avoid unnecessary panic among the public (NHS, 2020). Also, using contact tracing apps, people were

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able to receive notifications on the possible risk of infection (Google, 2020). Besides, treatment advice and remote checking were offered by doctors (GSMA, 2020; Ghosh et al., 2020). • AI modeling helped several governments to improve virus monitoring through spread tracking (Zhou et al., 2020), outbreak predictions (Ardabili et al., 2020; Strzelecki, 2020), resource allocation (Morariu et al., 2020; Ibrain & Salluh, 2020), and decisions support (Gao et al., 2020; Gatto et al., 2020). • AI-based health systems such (Huang et al., 2020; Mei et al., 2020) have proved the strong AI ability to identify COVID-19 from CT images, which helps to speed up infection testing. Also, the global competition for vaccines is primarily a race of AI in bioscience (Magar et al., 2020). Regarding the accelerated adoption of AI techniques, we can distinguish three trends that may affect the post-pandemic situation. The first is a faster digitalization in numerous industries to compete or survive through this crisis that impacted the production, delivery, and services by implementing AI technologies. During the lockdown, the digitization movement in firms’ activities, as well as virtual business, increased rapidly. The amplified clients’ requirements and the advanced digital business model become the new standards for companies and firms. Consequently, traditional companies are facing an urgent necessity for digital change to survive and use practical platforms within a digital business ecosystem (Liu et al., 2020). COVID promoted digital transformation (Atkins, 2020). However, companies should sustain an equilibrium among the long-term goals and the instantaneous profits. The second trend is improved use of AI which allows wide-ranging implications for all sectors, which increases the challenges. Digital independence is an extremely discussed subject under spotlights (Pinto, 2019). When companies tackle progressively greater datasets, they progressively expand their capacities to transform the business competition. Thus, increasing AI adoption is critical to a firm’s long-term improvement. The third movement is the AI-driven solutions broadly used against COVID-19 (Bullock et al., 2020). Unfortunately, few of these proposed AI systems are mature enough to mark the fields of epidemiology and diagnosis (Petropoulos, 2020). The constraints mostly come from the lack of vast historical training datasets, as well as the data quality issues (Naudé, 2020). These three trends should be unified as whole progress to accelerate the advancement of business and markets. The development of AI technologies and their infiltration into business practices will convey thoughtful variations in the upcoming years. During the COVID-19 pandemic, AI applications allowed people to overcomes many triggered issues and contributed to developing new ideas for future uses.

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5 Technological Readiness for the Future AI techniques have been available for decades, but not widely trusted and implemented. However, COVID-19 has exposed numerous deficiencies within the global market systems and highlighted the need for advanced innovations, as illustrated in Fig. 3. Artificial intelligence is supporting the fight against COVID19 and enhancing the innovation process to overcome the upcoming crisis (Block, 2020). Hence, the fast development and employment of AI systems are considered a vital solution (Silverman, 2020). Artificial Intelligence is an extensive field, which includes several sub-fields such as natural language processing, multi-agent systems, robotics, machine learning, computer vision, sensory or IoT systems, and decision aids. Business and financial interests in AI adoption have been increasing recently (Yapo, 2018). Additional artificial intelligence solutions are requested to better control the future economic situation (Mueller, 2019). The number of firms using these advanced technologies lately has increased It is difficult to control or even to predict the percentage of businesses successfully implementing AI solutions. However, most firms are not prepared for the speedy adoption of extra AI-based applications. The AI systems, summarized in Fig. 3, describes different levels of efficiency regarding their capacity of enhancing or replacing human managers in different processes.

Fig. 3 AI readiness for developing advanced solutions

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6 Discussion Considering involving AI applications in numerous areas, important questions should be raised i.e.: how to adopt AI? When? and to what? This is the subject of discussions in the literature from the perspective of considering AI’s capacity to replace human tasks. Modern technologies can automatically achieve work activities to lower costs as well as time and resource consumption. Consequently, it is imperative to undertake supplementary explicit investigations of AI aptitude to replace humans. Regarding financial decisions perspectives, preliminary investments in AI systems may produce quick, low-cost, and reasonably exhaustive indicators of new AI innovations. Yet, the managers’ decision is still hard to replace. Therefore, a complete digital renovation may be very challenging. Evolving AI systems are organized by the important management team for better market opportunities exploration. For that, the AI decisions throughout the company are considered as essentially complex and, thus, challenging to entirely replace human activities. It would involve advanced processes to increase and build new market power, and create flexible changes and strategies. The full adoption of AI is a challenging task due to the new requirements to address novel industry environments (Ransbotham et al., 2017; Yun et al., 2019). It involves consenting new resources and knowledge, building new standards, and modeling new solutions to merge the new AI innovations into the current set of products (Brynjolfsson et al., 2017). Firms would need to build and adjust routines aligned with the post-pandemic requirements in terms of products, configuration, structures, and systems. These activities can be reinforced by AI systems within strong and stimulating restrictions. As AI can support the new invention concepts, the market analysis, also the resources scheduling, AI is more relevant for the management teams, which are less acquainted with the environment. However, AI adoption is likely to run together with human management for better results. Previous researches have stated that overloaded management AI systems can learn satisfactory knowledge to keep up with new products, better decision-making. How short-term are AI solutions? how difficult is the AI solution implementation? There are numerous challenges related to implementing these AI emerging technologies in companies. The specific challenges are the technology itself, for example, the issue of historical data accessibility and suitability. Besides, some AI systems require vast amounts of data and strong processing functionalities (Insights, CB, 2019). Firstly, the provided AI technologies are not mature enough to be used in professional settings without AI experts’ involvement. For instance, reinforcement learning (RL) is an extremely vibrant AI discipline, and researchers still making interesting progress (Charrington, 2019). However, reinforcement learning is mostly used to develop AI-based solutions that may overcome human performance in several contexts. Also, a real-world reinforcement learning application in automatic

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riding (Lin et al., 2018; Qin et al., 2019). The RL solution has been tested in few Chinese cities, so it revealed greater effectiveness than previous non-RL-based systems (Hao, 2018). Separately from the fact that several AI solutions have not evolved significantly, some AI technologies are still experiencing development and revealing promising aspects. However, certain challenges are centered on technology–humans. This second set of challenges is thoroughly correlated to the involved humans in the AI resolutions’ in businesses. Often, companies ‘teams miss the practical skills to effectively implement the new AI solutions (Chui et al., 2018). Firms that have teams with crucial practical skills then meet the succeeding barrier. Both employees and experts should be involved to develop high-performing AI solutions (Bughin et al., 2018b; Daugherty et al., 2018). Such cooperative approaches to develop AI solutions can be relatively complex. Cooperative teams are essential to warrant the development of AI solutions to fix significant problems during the COVID-19 pandemic. Some challenges are between humans and technology. For instance, a limiting aspect in adopting AI solutions may advance the required human interventions. Moreover, in many cases, AI systems can explore solution space using a pre-defined algorithm inspired by human behaviors in the workspace. Hence, insufficient specifications by individuals can lead to doubtful outcomes. Therefore, human intervention is important but that can rise weakness in the processes. However, human intervention is helpful reliant on the context. Essentially, the main challenge is understanding when to avoid human intervention and when to adopt it. Moreover, it is vital to warrant that humans obtain clear statistics from AI solutions to make optimal decisions. Lastly, a human–technology challenge is trusting AI systems. Sometimes humans trust AI skills and technologies. That generates resistance to adopt AI solutions (Glikson et al., 2020). Thus, implementing AI systems that humans can effectively trust is a vital challenge to overcome in future AI systems.

7 Conclusion This paper has set itself the objective of studying the importance and the solutions proposed by these artificial intelligence tools to financial decision-making in times of crisis. To meet our objective, we proceeded with a review and schematization of AI to address the impacts of COVID on financial markets and corporate financial decisions. First, we discussed a systemic and detailed literature review on artificial intelligence in finance. Then, we discussed the potentialities of AI during COVID-19 and its importance in innovation processes that can strengthen the position of firms and markets in the face of the crisis. Artificial intelligence in finance and economics is not a new marvel. It has been in progress for numerous decades, but a global consensus confirms that it is conquering an inflection point lastly. The union between robots and Big Data is nowadays designing new economic aspects and, therefore, new strategies and processes.

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However, this consensus is still questioned regarding the possible extensions of the new digital economy i.e.: jobs creation, losses, movement or variation; the affected sectors; the needed skills; and, the way the transition would take place. Answering these questions is still under study. In the same way, the global impacts on work conditions, employment quality, work forms, and social variations are complicated to assess precisely. In the industrial sector, the race among machines and workers is a troubling issue regarding workplace, actions control, real-time surveillance, managerial process, etc. For that, the digital revolution has, also has a dark side, which is highlighted by the need for cooperative and agile efforts to smooth organizational control and enhance global competitiveness. The adoption of artificial intelligence reveals important inequalities among workers, who may be progressively isolated, and expert that must afford advanced tools to cover the increasing demands. AI is bringing further freedom to some workers, collaboration, competition; sharing, casualization, etc.

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ECB’s Pandemic Emergency Purchase Programme from Legal Perspective Johan Schweigl

1 Unconventional Monetary Policy Instruments of the Last Decade Unconventional monetary policy tools have become rather a standard of the last decade. Following the financial crisis of 2008–2009, a new challenge for the eurozone countries started to emerge in 2010 with high tensions on the sovereign debt markets. For some of the most effected countries it was extremely difficult (and expensive) to finance their public debt.1 Moreover, high spreads in sovereign yields among the euro area member states had strong negative effects on the functioning of the monetary policy transmission mechanism. (Mersch, 2020). There were various sets of measures taken in respect to the crisis, some were taken by the governments of the EU member states, some by the EU as a whole, some by the ECB.2 It was generally believed that these measures had to be complex and in line with each other in order to target the whole economy of the eurozone, or 1

These tensions were mainly reflected by a very large increase in the sovereign bond spread in Greek, Italian and Spanish (and of several other countries) bonds vs. German bonds, which had great impact on country risk rating and subsequently on the yield and price of the respective sovereign bonds. For more, see e.g. Stracca, Livio. The global effects of the euro debt crisis. ECB Working paper series. No 1573. August 2013. ECB. 2013. ISSN: 1725–2806 (online). Available here: https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1573.pdf 2 There were also steps taken by other institutions with more or less direct effects on the EU, such as adoption of Basel III Accord by Basel Committee on Banking Supervision of Bank for International Settlements. For more see, e.g. BIS, Basel III: international regulatory framework for banks. Available at: https://www.bis.org/bcbs/basel3.htm J. Schweigl (*) Department of Financial Law and Economics, Faculty of Law, Masaryk University, Brno, Czech Republic e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 N. Mansour, L. M. Bujosa Vadell (eds.), Finance, Law, and the Crisis of COVID-19, Contributions to Management Science, https://doi.org/10.1007/978-3-030-89416-0_4

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to be precise of the entire EU. Aside from the overall goal, which was to re-establish financial stability, there were partial strategic goals. To name a few, there was an agreement to secure the decline of Greek debt to a level equivalent to 120% of GDP by 2020, which was to be achieved partly via a voluntary bond exchange involving a 50% nominal discount on notional Greek debt held by private investors, partly by contribution of eurozone members. There was established a new EU-IMF multiannual programme financing connected with establishment of several new financial assistance (rescue) funds, such as European Financial Stabilisation Mechanism (EFSM) and European Financial Stability Facility (EFSF) in 2010, to be followed by European Stability Mechanism (ESM) in 2012. Whereas EFSM was created within the EU legal framework, based on an EU regulation, EFSF and ESM are not part of EU law stricto sensu. EFSF was established as société anonyme (joint stock company) under the laws of the Luxembourg which concluded an EFSF framework agreement with the participating countries. As such, EFSF is a privatelaw entity with equity capital provided by the member states.3 ESM was established based on an intergovernmental treaty, so it is an independent international organisation. Although its members are euro area member states (and to a certain extent EMS is now a part of the EU’s crisis resolution framework), ESM is not a body of the EU.4 As a result of the crises, there were also introduced new regulatory requirements on banks and other financial institutions mainly consisting of stricter capital and liquidity requirements and there was shaped a new framework of supervision with a special emphasis on macroprudential supervision and the overall stability of the financial system.5 The attempts to create a real banking union, which have led to creation of a single rule book, single approach to dealing with systematically important banks in troubles in the euro area and single supervision, was probably among the most visible legislative measures. Aside from these measures, ECB employed several unconventional monetary policy tools. Already in 2008, it activated certain special measures called enhanced credit support,6 whose objective was to provide commercial banks with access to more liquidity. In April 2010, ECB opened the Securities markets programme (SMP),7 to be followed by Outright monetary transactions (OMT) programme announced in August 2012. Although the purchases under the latter had never

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i.e. the then members of the euro area. For more see e.g. Nevečeřalová, Nikol, Schweigl, Johan. Právní aspekty evropských fondů finanční asistence. Brno: Masarykova univerzita, 2020, 134 p., Edice Scientia, 683. ISBN 978–80–210-9617-2 (print.), 978–80–210-9618-9 (online). 5 For more see e.g. Acharya V. Viral, Steffen Sascha. The Importance of a Banking and Fiscal Union for Capital Markets Union. Luxembourg: Publications Office of the European Union, 2017. ISBN 978–92–79-64,915-8 (online). Available here: https://ec.europa.eu/info/sites/default/files/ dp_062_en.pdf 6 ECB. The Monetary Policy of the ECB. ECB, 2011, 160 p., p. 127. ISBN 978–899–0777-4. 7 Decision of the European Central Bank of 14 May 2010 establishing a securities markets programme (ECB/2010/5). 4

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actually started, the programme was subject to judicial review both by the German Constitutional court and the Court of Justice of the EU.8 Several other programmes followed, among which the crucial one has been public sector purchase programme (PSPP), under which the purchases were opened in 2015, and which was also challenged before the court. The aim of this chapter is to present the core features of the Pandemic Emergency Purchase Programme (PEPP), a bond-buying programme introduced by the ECB in March 2020, to outline the core legal challenges the previous asset purchase programmes had to deal with and consider the possible legal challenges that might be brought against the PEPP.

2 The Core Features of PEPP Unlike the effects of financial crises of 2008–2009, or of the eurozone debt crises of 2010s, the shock caused by the pandemic that first hit in 2020 was universal. It has led to partial switch offs of many economies and thus has had effects across the entire countries, regions and sections of society. Economic activity across the euro area declined significantly.9 The spread between Italian bonds and German bunds started to rise rapidly.10 Some scholars claim it was partially caused by the ECB’s initial decision to tackle the crisis only by extending the then ongoing asset purchase programme (APP) by €120 billion in 2020 (Stamegna & Delivorias, 2020, p. 7) and by providing more liquidity by means of additional longer-term refinancing operations (LTROs) and targeted longer term-refinancing operations (TLTROs). ECB could use its experience gained from the euro debt crisis with how transmission mechanism may be curbed when the spreads between the sovereign bonds of euro area members rise so these initial steps were soon extended by introduction of further programmes and credit conditions. Having emphasised that fiscal (and health) policies must be front and centre of response (Lagarde, 2020a), ECB went on to introduce a set of monetary measures that were to ensure that economic consequences of the pandemic do not impair the smooth functioning of monetary policy transmission mechanism and put price stability at risk. PEPP has been the most crucial measure and was initiated on March 24, 202011 as a non-standard monetary

8

More on the judicial review in the sub-chapter on legal challenges. According to the ECB, after a sharp contraction in the first half of 2020, euro area real GDP rebounded and rose by 12.5%, quarter on quarter, in the third quarter. It however remained well below pre-pandemic levels. (ECB, Economic Bulletin, Issue 8/2020). 10 At the end of February 2020, the spread was around 150 basis points, with a peak in March 17, 2020 of 275 basis points. (Investing.com, Italy 10 Year vs Germany 10 Year Spread Bond Yield Overview, available at: https://www.investing.com/rates-bonds/de-10y-vs-it-10y) 11 The decision about the programme was made and announced on March 18, 2020, followed by the official published Decision (EU) 2020/440 of the European Central Bank of 24 March 2020, on a temporary pandemic emergency purchase programme (ECB/2020/17). 9

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policy tool in a form of a new temporary asset purchase programme of private and public sector securities. The decision was made by the Governing Council of ECB within its powers as laid down in the Treaty on Functioning of the European Union (TFEU), or to be more precise in the Protocol No 4 to TFEU. In accordance with Art. 127(2) TFEU, the basic tasks to be carried out through the ESCB include defining and implementing of monetary policy of the EU (actually only the euro area member states). The Art. 18 of the Protocol 4 contains some of the tools that may be employed by ECB (the Eurosystem). Among those are open market operations. Eurosystem banks are entitled to operate in the financial markets by buying and selling outright (spot and forward) or under repurchase agreement and by lending or borrowing claims and marketable instruments, whether in euro or other currencies, as well as precious metals. Apart from the core requirement that ECB only takes steps within its mandate, there is another provision in the TFEU which monetary measures by ECB have to be in line with. It is a so-called monetary financing ban, as laid down in the Art. 123 TFEU, which bans purchases of debt instruments or opening of overdraft facilities or any other type of credit facility with the ECB or with the central banks of the member states in favour of all types of public entities and authorities or bodies governed by public law. The decision on PEPP was published in Official Journal of the EU as Decision (EU) 2020/440 of the ECB of 24 March 2020 on a temporary pandemic emergency purchase programme, with effects as from 26 March 2020. This programme consists of purchases of various types of securities. Among the securities eligible are all asset categories eligible under the abovementioned programme APP, which has been active since 2014 and covered several partial programmes, such as public sector purchase programme (PSPP), corporate sector purchase programme (CSPP), assetbacked securities purchase programme (ABSPP) and third covered bond purchase programme (CBPP3). The eligible securities (namely thus cover marketable debt securities, corporate bonds, covered bonds and asset-backed securities as outlined in the decisions, by means of which the particular APP programmes were originated.12 The original envelope of PEPP, as announced in March 2020, was €750 billion, to be increased by €600 billion to a total of €1350 billion in June 2020. This increase was decided together with extension of length of the programme till the end of June 2021. Another increase was made by ECB in December 2020, when the envelope was increased by €500 billion to a total of €1850 billion and the horizon for net purchases was expected to last at lease till the end of March 2022. Next to the PEPP, the purchases under the APP were confirmed to continue at a monthly pace of €20 billion and reinvestments of the principal payments from maturing securities purchased under this programme would continue in full. The

12

The Decision (EU) 2020/188 of the European Central Bank (ECB/2020/9), Decision (EU) 2016/ 948 of the European Central Bank (ECB/2016/16), Decision (EU) 2020/187 of the European Central Bank (ECB/2020/8) and the Decision (EU) 2015/5 of the European Central Bank (ECB/2014/45).

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ECB also stated that these limits are not necessarily final and can be adjusted according to the economic situation and the development of the pandemic.

3 Legal Challenges of PEPP 3.1

Previous Cases—Gauwailer and Weiss

ECB and the ESCB have been granted powers in the primary EU law and as such “the exercise of public authority in whatever form has to be subject to judicial control to ensure the observance of the rule of law.” (Türk, 2017). There are several mechanisms by means of which the monetary policy measures may be become subject of judicial review. In the last decade, there were issued several CJEU decisions concerning the use of monetary policy tools. There were different grounds of the cases, but in general they mainly concerned the limits on the powers the ECB (Eurosystem) can exercise when conducting monetary policy, or to be more precise, when applying unconventional monetary policy instruments. Although not dealing with the particular conditions, under which a programme may be carried out, in Accorinti13 there was ruled that the SMP programme fell within the ECB’s monetary policy mandate (Viterbo, 2020, p. 678). The court obiter dictum ruled that “as regards the unlawfulness of the alleged conduct of the institution, the case-law requires that there must be established a sufficiently serious breach of a rule of law intended to confer rights on individuals.”14 The test for finding whether a breach is sufficiently serious rests upon consideration whether the limits on its discretion were manifestly and seriously disregarded.15 In that regard, the Court stated that the disputed conduct of the ECB took place in the context of the tasks conferred on it for the purposes of defining and implementing the EU monetary policy, under Articles 127 TFEU and 282 TFEU and Article 18 of its Statute, in particular by intervening on the capital markets and managing credit operations and these provisions “confer a broad discretion on the ECB, the exercise of which entails complex evaluations of an economic and social nature and of rapidly-changing situations, which must be carried out in the context of the Eurosystem, or even of the European Union as a whole.”16 The court went on to explain that any sufficiently serious breach of the legal rules must be based on a manifest and serious failure to 13

General Court, judgement of 7 October 2015, T-79/13, Alessandro Accorinti and Others v. ECB. In this case, the court considered validity of steps concerning ECB’s holdings of Greek sovereign debt exclusion from the 2012 debt restricting of Greek debt. 14 Reference made to the judgment of 4 July 2000 in Bergaderm and Goupil v Commission, C-352/ 98 P, ECR, EU:C:2000:361, paragraph 42. 15 General Court, judgement of 7 October 2015, T-79/13, Alessandro Accorinti and Others v. ECB, para 67. 16 General Court, judgement of 7 October 2015, T-79/13, Alessandro Accorinti and Others v. ECB, para 68.

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have regard for the limits of the broad discretion enjoyed by the ECB when exercising its powers in monetary policy matters.17 In 2015, there was a case concerning legality of the OMT. OMT was announced at the beginning of August 2012, to be followed by brief announcement of OMTs’ technical features on 6 September 2012. The purchases under this programme hadn’t been activated, though. The applicants started the proceedings18 at the German Constitutional Court (Bundesverfassungsgericht) (GCC) claiming that the OMT decisions form an ultra vires act inasmuch as they are not covered by the mandate of the ECB and infringe Article 123 TFEU, i.e. the monetary financing ban. They further claimed that the OMT decision breaches the principle of democracy entrenched in the German Basic Law (Grundgesetz) and therefore do not comply with German constitutional order. GCC decided to stay the proceedings and referred a couple of questions to the CJEU for a preliminary ruling. Moreover, it stated that if the OMT decisions exceed the mandate of the ECB or infringe Article 123 TFEU, the GCC would have to uphold the actions. As for the ECB’s mandate, CJEU explained that as regards monetary policy, Art 3(1)(c) TFEU gives the EU exclusive competence in that area for the member states whose currency is the euro.19 The ECB and the central banks of the euro area member states constitute the ESCB (or to be more precise the Eurosystem), within which they conduct the monetary policy of the EU. Under the Art. 282(4) TFEU, the ECB is entitled to adopt measures which are necessary to carry out its tasks under TFEU and its Protocol No. 4.20 In so doing, the Eurosystem banks are independent. As the CJEU explains, this article is intended to shield the ESCB and its decisionmaking bodies from external influences which would be likely to interfere with the performance of their tasks.21 The CJEU went on to explain that this provision22 is intended to shield the ESCB from all political pressure in order to enable it effectively to pursue the objectives attributed to its tasks, through the independent exercise of the specific powers conferred on it for that purpose by primary law. When looking at the nature of the unconventional monetary policy tools in question, the CJEU outlined the grounds of the power as follows: the ability of the ESCB to influence price developments in fact depends mainly on the “transmission of the ‘impulses’ which the ESCB sends out across the money market to the various sectors of the economy.” If this transmission mechanism is disrupted, the singleness of monetary policy could be undermined. Moreover, since disruption of the

17

General Court, judgement of 7 October 2015, T-79/13, Alessandro Accorinti and Others v. ECB, para 68. 18 There were several actions concerning the subject matter. 19 Similar question was already dealt with in the judgment Pringle, C-370/12, EU:C:2012:756, paragraph 49–50. 20 Comp. Art. 133, 138 TFEU and the conditions laid down in the Statute of the ESCB and of the ECB. 21 Gauwailer, C-62/14, ECLI:EU:C:2015:400, paragraph 40. 22 Article 130 TFEU.

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transmission mechanism undermines the effectiveness of the measures adopted by the ESCB, that necessarily affects the ESCB’s ability to guarantee price stability. Accordingly, measures that are intended to preserve that transmission mechanism may be regarded as pertaining to the primary objective laid down in Article 127(1) TFEU.23 According to the Court, it is clear that in order to achieve the objectives of the ESCB and to carry out its tasks, the ECB and the national central banks may operate in the financial markets by buying and selling outright marketable instruments in euro, which is in line with the announcement of how OMT is to be carried out.24 Hence, the OMT programme clearly falls within the area of monetary policy. The Court then focused on proportionality of the programme. Any tools applied by ECB (including the bond-buying programmes) may only be validly adopted in so far as they are proportionate to the objectives of the monetary policy.25 Proportionality as such has already been interpreted by CJEU in its previous decisions26 and the general principle says that acts of the EU institutions have to be appropriate for attaining the legitimate objectives of the legislation at issue and do not go beyond what is necessary for achievement of those objectives. The acts of the EU institutions, in this case the ECB, must show a clear and unequivocal reasoning so that the Court could exercise its power to review. Despite this general requirement of proper reasoning, CJEU explained in the Gauweiler case, it is not required that every relevant point of fact and law are being paid attention to. It is not only the wording of the measure, but also its context and the “whole body of legal rules governing the matter in question.”27 As the bond-buying programme is based on economic situation, the reasoning and the judicial review thereof, should aim at such economic circumstances. CJEU did not require deep reasoning in this area, though. It stated that the programme is based on an overall analysis of economic situation, covering the yields on sovereign bonds, volatility on the markets and the size of spreads, which according to ECB were caused, in part, by the demand for excessive risk premia for the bonds issued by certain euro area member states and this special situation undermined the ECBS’s monetary policy transmission mechanism in that “it gave rise to fragmentation as regards bank refinancing conditions and credit costs, which greatly limited the effects of the impulses transmitted by the ESCB to the economy in a significant part of the euro area.”28 CJEU thus relied on the explanation and reasoning the ECB gave. It is a question whether the Court should have a closer look at the economic circumstances, i.e. whether it should analyse it in more detail. In my opinion, this is an example of an area where the Court has to, to certain extant, rely on the expertise

23

Gauwailer, C-62/14, ECLI:EU:C:2015:400, paragraph 53. Gauwailer, C-62/14, ECLI:EU:C:2015:400, paragraph 54. 25 Comp. Art. 119(2) and 127(1) TFEU and Art. 5(4) Treaty on the European Union (TEU). 26 Comp. judgment in Association Kokopelli, C-59/11, EU:C:2012:447, paragraph 38. 27 Gauwailer, C-62/14, ECLI:EU:C:2015:400, paragraph 70. 28 Gauwailer, C-62/14, ECLI:EU:C:2015:400, paragraph 72–73. 24

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given by another EU body, i.e. ECB in this case. If the Court was to analyse the economic situation in more detail and weight whether the measures were proportionate with respect to the consequences that might occur without such measure, the power to review would be extended beyond the regular scope of judicial review. Next, the CJEU considered whether the programme did not breach the Art 123(1) TFEU, i.e. the monetary financing ban. The Court reviewed rather the general statements included in the announcement of OMT, as the actual purchases of sovereign bonds hadn’t been activated under this programme. The CJEU first emphasised that the programme provided for the purchase of government bonds only in so far as is necessary for safeguarding the monetary policy transmission mechanism29 and the singleness of monetary policy. The Court also highlighted the fact the purchases were to be ceased as soon as those objectives are achieved, according to the statement of ECB30 and that the programme was in fact limited, because it was to apply only to certain types of bonds issued by these euro area member states which were undergoing a structural adjustment programme and which had access to the bond market. In this, the CJEU identified restriction of the volume of government bonds eligible to be purchased. Moreover, the ESCB had—according to the announcement—the option of selling any purchased bonds, which meant that the consequences of withdrawing those bonds from the markets is only temporary. To sum up, the CJEU uphold the ECB’s decision on the OMT programme. The CJEU’s decision then reflected in the judgement of the GCC of 21 June 2016.31 GCC ruled that some of the constitutional complains were inadmissible (the ones directly challenging the acts of the ECB), other were admissible but unfounded. GCC explained that it based its review on the interpretation of the OMT decision formulated by the CJEU and the policy decision on OMT programme finds within the bounds of the respective competences and not in breach with the monetary financing ban. Nevertheless, the GCC also stated that the CJEU decision meets with serious objections of part of the senate: “These objections concern the way the facts of the case were established, the way the principle of conferral was discussed, and the way the judicial review of acts of the ECB that relate to the definition of its mandated was conducted.”32 As for the implementation of the programme, GCC summarises the conditions laid down in the CJEU decision and stated that if the following conditions are not met, the OMT programme would constitute an ultra vires act and the German Bundesbank couldn’t participate in it. The conditions are that: (i) purchases are not announced; (ii) the volume of the purchases is limited from the outset; (iii) there is a minimum period between the issue of the government bonds and their purchase by the ESCB that is defined from the outset and prevents the issuing conditions from being distorted; (iv) the ESCB purchases only government bonds of Member States that have bond market access enabling the funding of

29

Comp. with the CJEU’s approach to proportionality above. Gauwailer, C-62/14, ECLI:EU:C:2015:400, paragraph 112. 31 2 BvR 2728/13, 2 BvE 13/13, 2 BvR 2731/13, 2 BvR 2730/13, 2 BvR 2729/13. 32 See the press release No 34/2016 of 21 June 2016 of GCC. 30

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such bonds; (v) purchased bonds are only in exceptional cases held until maturity and; (vi) purchases are restricted or ceased and purchased bonds are remarketed should continuing the intervention become unnecessary. At the beginning of 2015, the ECB announced another bond-buying programme, the PSPP. ECB actually extended its purchases from the previous programmes to include bonds issued by the euro area governments. The monthly asset purchases first amounted to €60 billion. In 2016, they were raised to €80 billion a month and on 1 April 2017, the volume was again lowered to the original €60 billion. In 2018, the purchases were only made in the amount of €30 billion and in the last quarter only €15 billion a month. For most of 2019, the purchases under PSPP were discontinued to be re-established as from 1 November 2019, at a monthly pace of €20 billion. Following the same path as in the previous Gauwailer case, this programme got also to CJEU by means of GCC, which stayed the proceedings before it and referred to CJEU several questions for preliminary ruling. The applicants, in principle, challenged the ECB’s mandate to make a PSPP decision and claimed that the programme infringes the monetary financing ban. Aside from that they also argued that the decision infringed the principle of democracy as laid down by the Grundgesetz (German Basic Law). The CJEU ruled in a judgement Weiss and Others that there was sufficient reasoning provided by ECB as for PSPP. The reasoning was included not only in the particular decisions on PSPP, where it was rather general, but also in several other documents by ECB, such as in Economic Bulletin, where there were presented general analyses of the monetary situation in the euro area and of a number of specific studies dealing with the effects of the APP and the PSPP. The Court came to conclusion that the programme at hand falls within the mandate of ECB and proportional in relation to the objectives of monetary policy. As opposed to the previous decision Gauwailer, the CJEU paid more attention to considering proportionality with regards to the actual economic analysis, or analysis of the effects of PSPP, which is “intended to ease monetary and financial conditions, including those of non-financial corporations and households, thereby supporting aggregate consumption and investment spending in the euro area and ultimately contributing to a return of inflation rates to the levels sought over the medium term.”33 This time the Court even considered validity of the ECB’s analysis, when saying that it does not appear the economic analysis according to which the PSPP was appropriate for contributing to achieving the objective of maintaining price stability is vitiated by a manifest error of assessment. This is supported also by the fact that the PSPP had, from the start, been intended as temporary in nature. As for the monetary financing ban, the CJEU repeated the general rule that the ESCB are not entitled to purchase bonds directly from the states or the bodies of the states, but can only do so on the secondary markets. And even these purchases on the secondary markets are subjects to certain limits. The purchases on the secondary markets cannot be made under such conditions which would mean they

33

Weiss, C-493/17, ECLI:EU:C:2018:1000, paragraph 76.

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have an effect equivalent to that of a direct purchase of bonds on the primary market. Such intervention cannot also turn the states whose bonds would be purchased from following a sound budgetary policy. Both of these requirements had already been presented in the Gauwailer case. The CJEU also commented on holding bonds until maturity and purchasing bonds at a negative yield to maturity. This practise is according to the Court in no way precluded by Article 18.1 of the Protocol on the ESCB and the ECB and that it does not imply that the ESCB waives its right to payment of the debt once the bond matures. The ESCB has the right to evaluate whether it is appropriate to envisage holding the bonds purchased under that programme and selling of the bonds is not regarded as the rule and holding them as the exception to that rule.34 To sum up, the CJEU uphold the ECB’s decision on PSPP. Based on the CJEU’s preliminary ruling, the GCC issued a judgement of 5 May 2020,35 in which it partially diverged from the CJEU’s findings. The GCC found that the German Federal Government and the German Bundestag violated the complainants’ rights deriving from the German Basic Law by failing to take steps challenging that the ECB didn’t satisfy the principle of proportionality as for PSPP and, to this extent, the CJEU’s judgement and the also the PSPP decisions by ECB are viewed by GCC as ultra vires. According the GCC: “If any Member State could readily invoke the authority to decide, through its own courts, on the validity of EU acts, this could undermine the precedence of application accorded to EU law and jeopardise its uniform application. Yet if the Member States were to completely refrain from conducting any kind of ultra vires review, they would grant EU organs exclusive authority over the Treaties even in cases where the EU adopts a legal interpretation that would essentially amount to a treaty amendment or an expansion of its competences.”36 In the view of GCC, consideration of the proportionality was not given proper attention by CJEU, which “limits it judicial review to whether there is a “manifest” error of assessment on the part of the ECB, whether the PSPP “manifestly” goes beyond what is necessary to achieve its objective. . .”37 On the other hand, GCC accepted the CJEU’s findings concerning the Art. 123(1) TFEU and thus did not find PSPP to be in breach with the monetary financing ban. The GCC based its findings concerning the compliance with the ban as follows: (i) the volume of the purchases is limited from the outset; (ii) only aggregate information on the purchases carried out by the Eurosystem is published; (iii) the purchase limit of 33% per international securities identification number (ISIN) is observed; (iv) purchases are carried out according to the ECB’s capital key; (v) bonds of public authorities may only be

34

Weiss, C-493/17, ECLI:EU:C:2018:1000, paragraph 147. 2 BvR 859/15, 2 BvR 980/16, 2 BvR 2006/15, 2 BvR 1651/15. 36 GCC judgement of 5 May 2020, 2 BvR 859/15, 2 BvR 980/16, 2 BvR 2006/15, 2 BvR 1651/15, paragraph 111. 37 Press release No 32/2020 of 5 May 2020 to GCC judgement of 5 May 2020, 2 BvR 859/15, 2 BvR 980/16, 2 BvR 2006/15, 2 BvR 1651/15. 35

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purchased if the issuer has a minimum credit quality assessment that provides access to the bond markets; and (vi) purchases are (and must be) restricted or discontinued, and purchased securities sold on the markets, if continuing the intervention on the markets is no longer necessary to achieve the inflation target. The GCC thus summoned the findings by CJEU and emphasised that only as long as these conditions are met, the Art. 123(1) is not breached. According to GCC, the Germany’s central bank (Bundesbank), which as one of the Eurosystem banks participating on the purchases (and having the largest capital share), can only participate further, if the ECB Governing Council adopts a new decision that demonstrates that the monetary policy objectives pursued by the PSPP are not disproportionate to the economic and fiscal policy. Some scholars and professionals authors consider the GCC decision rather controversial.38 So far, Bundesbank has been participating in the purchases.39

3.2

Legal Issues Connected with PEPP

The previous CJEU decisions (mainly Gauwailer and Weiss) provided some interpretation of the notions of monetary policy mandate and monetary financing ban. They also focused on the concept of proportionality of the acts made by the EU bodies. The CJEU has been, in principle, very supportive of the bond-buying programmes. As Germany holds the largest capital share of ECB, the participation of Bundesbank in the asset purchase programmes is rather crucial. So the respective decisions of the GCC are also very important for proper functioning of the single monetary policy. The GCC judgements in Gauwailer and Weiss show that GCC is rather more strict as for the requirements on reasoning made by the ECB, consideration of proportionality and monetary financing. Nevertheless, in my opinion, the findings arising from the GCC decisions are not a priori against the bond-buying, but they require stronger borders and conditions for the acts of the EU’s monetary and fiscal policies.

38

See, e.g. Egidy, Stephanie. Proportionality and procedure of monetary policy-making. International Journal of Constitutional Law, Volume 19, Issue 1, January 2021, Pages 285–308, https://doi. org/10.1093/icon/moab015 and Claeys, Gregory. ‘The European Central Bank in the COVID-19 crisis: whatever it takes, within its mandate’, Policy Contribution 09/2020, Bruegel. Available at: https://www.bruegel.org/wp-content/uploads/2020/05/PC-09-2020-final.pdf 39 Fitch wire. Bundesbank to Maintain Bond Buying after Court Response. Cit. on 30.6.2021. Available at: https://www.fitchratings.com/research/sovereigns/bundesbank-to-maintain-bond-buy ing-after-court-response-07-08-2020 and Bundesbank, Active Programmes. Cit. on 30.6.2021. Available at: https://www.bundesbank.de/en/tasks/monetary-policy/outright-transactions/activeprogrammes-625978

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The ECB’s PEPP decision40 was adapted after the Gauwailer and Weiss case had been issued by CJEU, but a few months before the GCC judgement in the Weiss case. Thanks to the CJEU case law, when the PEPP decision was being shaped, the Governing Council members had much larger certainty on what particular requirements the programme should have so that it is in line with the EU law. There seem to be some efforts to make sure that it complies with the EU law, and namely the CJEU case law, although, in my opinion, these efforts could be more extensive. The recitals of the ECB’s PEPP decision explain the causes and objectives of the programme, namely the “extraordinary and acute economic crisis, which could jeopardise the objective of price stability and the proper functioning of the monetary policy transmission mechanism” and the expectation that “this situation hampers the transmission of the monetary policy impulses and adds severe downside risks to the relevant inflation outlook.” The ECB considers PEPP as proportionate given the economic situation. Despite the fact that the benchmark allocation across jurisdictions of the euro area is to be guided by the key for subscription of the ECB’s capital as referred to in Article 29 of the Statute of the ESCB, the ECB’s announced that there will be a rather flexible approach to the composition of the purchases, according to the economic needs. Aside from the text of the ECB’s PEPP decision (and the following decisions concerning mainly the size of the envelope), the ECB keeps on issuing documents explaining the economic situation in the euro area and further explain the reasons that had led to the PEPP and the members of the ECB central bankers gave several speeches where they also focus on legality of the programme.41 In his speech of November 2, 2020, Yves Mersch (2020) mentioned that when forming the framework of PEPP a special attention was given to the CJEU’s case law, mainly in the area of the extent of the discretion in defining monetary policy within the ECB’s mandate to pursue price stability and proportionality to the ECB’s legitimate objective. Further, he highlighted that the ECB’s steps should not undermine the spirit of the “no bailout clause” and must comply with the prohibition of monetary financing. The ECB has been emphasizing that the PEPP measures are temporary and, targeted and only made to the extent that is necessary to fulfil the ECB’s mandate.

40

Decision (EU) 2020/440 of the European Central Bank of 24 March 2020, on a temporary pandemic emergency purchase programme (ECB/2020/17). 41 Comp. e.g. Lagarde Christine. One year of the PEPP: many achievements but no room for complacency. In: ECB web. 2. 10. 2020. Available at: https://www.ecb.europa.eu/press/key/ date/2020/html/ecb.sp201102~5660377b52.en.html or Lagarde, Christine. Our response to the coronavirus emergency. March 19, 2020. Available at: https://www.ecb.europa.eu/press/blog/ date/2020/html/ecb.blog200319~11f421e25e.en.html or Mersch, Yves, member of the Executive Board of the ECB, speech of 2 November 2020. Legal aspects of the ECB’s response to the coronavirus (COVID-19) pandemic—an exclusive but narrow competence. Available at: https:// www.ecb.europa.eu/press/key/date/2020/html/ecb.sp201102~5660377b52.en.html

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There have been several studies already made as for the legality of the PEPP.42 Some authors analysed the measures and are of the opinion that PEPP complies with the CJEU’s case law. According to Grund, the PEPP’s “objectives are proportional because they address a malfunctioning of the smooth transmission of the monetary policy signals across the currency area triggered by the sudden stop in economic activity.” As for the grounds for proportionality, he concludes that the PEPP entails the required safeguards, such as restriction of bond purchases, limitation of time to periods of malfunctioning monetary policy channels, not selective approach, limitation to securities with stringent eligibility criteria and the PEPP is subject to a limited loss-sharing arrangement. As for the monetary financing ban, there are no equivalent effects to bond purchases on the primary markets and the programme doesn’t incentivise the member states to pursue “unsound” budgetary policies (Grund, 2020, p. 9). Similar approach has Claeys, who believes that a proclaimed relaxation of the self-imposed 33% limit43 is also in line with EU law (Claeys, 2020, p. 9). The stand presented by Grund, Claeys and others seems to be reasonable. However, some other scholars point out that there are important differences between the measures took within PEPP and the previous bond-buying programme. They claim that for PEPP purchases, the ECB does not provide the same transparency as for the PSPP, since, the ECB had “only revealed the aggregated purchases from the start of the programme in March 2020 to the end of May by country, but no monthly data.” (Havlik & Heinemann, 2020, p. 14). Viterbo warns that if PEPP is expended to “fallen angels”, i.e. bonds of the countries that have lost access to the financial markets, either by granting ad hoc waivers (as it is with Greece) or by altering eligibility criteria, it will stir controversy. (Viterbo, 2020, pp. 676–677). One of the differences from the previous bond-buying programmes the PEPP has is that the core capital key principle is weakened by the announced flexibility as for purchases among the individual state’s bonds. This feature makes the PEPP different and may have to be answered by CJEU if the case appears before this it. On the one side, it seems to be logical to purchase primarily the particular bonds that show the largest spreads and as such can be the real cause of the malfunctioning of the transmission mechanism, on the other side, purchases in such a flexible manner, despite the announcement of the capital key approach, should be based on proper reasoning. The question whether the reasoning given by the ECB is sufficient will be probably answered by the CJEU and GCC. It is also possible that GCC will no longer stay the proceedings and refer the case to the CJEU for a preliminary ruling, as the GCC may come to a conclusion that all the respective norms of the EU law 42 See, e.g. Grund, Sebastian. Legal, compliant and suitable: The ECB’s Pandemic Emergency Purchase Programme (PEPP). Hertie School, Jacques Delors Centre. Part of project “Repair and Prepare”, a joint project of the Bertelsmann Stiftung and the Jacques Delors Centre. Available here: https://www.delorscentre.eu/en/publications/detail/publication/legal-compliant-and-suitable-theecbs-pandemic-emergency-purchase-programme-pepp 43 There was a self-imposed limit that Eurosystem banks should not buy more than 33% of a country’s debt.

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which are to be applied in the case at hand, have been properly interpreted in the previous cases, namely in Gauwailer and Weiss. As for the Weiss case, the GCC would probably use only the findings concerning the Art 123(1) TFEU, which the GCC reflected even in its judgement of 5 May 2020. In such case, the GCC would bring its decision without a preliminary ruling by CJEU. Nevertheless, the different features of PEPP, compared to PSPP and OMT, seem to be a good cause for a referral for a preliminary ruling to be made by CJEU. Further interpretation by CJEU concerning the core issues, such as ECB’s mandate, proportionality principle and monetary financing ban may bring even higher level of legal certainty to all participants.

4 Conclusion Using of non-conventional monetary policy tools has become more and more popular in the last decade although the grounds and reasons for these tools varies. Following the initial SMP and the later OMT or PSPP, the new bond-buying programme PEPP which was introduced by the ECB as a key monetary response to the COVID 19 pandemic. This programme’s envelope has been increased twice during the last year to amount to €1850 billion. As such, the possible volume is unprecedented and can be viewed as monetary policy bazooka, which may not have to be used in full.44 Some of the previous programmes, mainly those with large expected volumes of purchases of sovereign bonds, were subject to judicial review by CJEU. This gave the court the opportunity to present its interpretation of several connected issues, mainly the interpretation of the Art. 123(1) TFEU, i.e. the monetary financing ban. As of finishing this text, there have been several lawsuits against PEPP pending before the German constitutional court.45 If the GCC decides not to stay the proceedings, it will probably consider the case based on the CJEU case law (with exception of the part of the Weiss case, to which the GCC had objections). If the case will be presented for a preliminary ruling to the CJEU, we may expect further and more detailed interpretation of the relevant issues, the scope of the ECB’s mandate, the proportionality principle and the monetary financing ban.

44

With reference to the term used by Henry M. Paulson, the then secretary of treasury, when dealing with financial crises in the USA in late 2008. When Mr. Paulson went to Senate Banking Committee for support with the planned steps for stabilising Fannie Mae and Freddie Mac, he said: “If you’ve got a squirt gun in your pocket, you may have to take it out. If you’ve got a bazooka, and people know you’ve got it, you may not have to take it out.” (Paulson, 2013, p. 151). In the Paulson’s case, the bazooka was however used in full and later was supplemented by other measures. 45 Mayer, Thomas. ECB asset purchases dilute European rule of law. In: Official Monetary and Financial Institutions Forum. 4 May, 2021. Available at: https://www.omfif.org/2021/05/ecb-assetpurchases-dilute-european-rule-of-law/

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References Claeys, G. (2020). The European Central Bank in the COVID-19 crisis: Whatever it takes, within its mandate. Policy Contribution 09/2020, Bruegel. https://www.bruegel.org/wp-content/ uploads/2020/05/PC-09-2020-final.pdf ECB. (2011). The monetary policy of ECB. Frankfurt: ECB. 160 p. ISBN 972–92–899-0777-4. ECB. (2021, January 7). Economic bulleting. https://www.ecb.europa.eu/pub/pdf/ecbu/eb202008. en.pdf Grund, S. (2020). Legal, compliant and suitable: The ECB’s Pandemic Emergency Purchase Programme (PEPP). Hertie School, Jacques Delors Centre. Part of project “Repair and Prepare”, a joint project of the Bertelsmann Stiftung and the Jacques Delors Centre. https://www. delorscentre.eu/en/publications/detail/publication/legal-compliant-and-suitable-the-ecbs-pan demic-emergency-purchase-programme-pepp Havlik, A., & Heinemann, F. (2020, July). Sling Down the Slippery Slope? Trends in the Rules and Country Allocations of the Eurosystem’s PSPP and PEPP. EconPol Policy Report Vol. 4, pp. 2–24. Leibniz: ZEW—Leibniz-Zentrum für Europäische Wirtschaftsforschung Mannheim GmbH. Lagarde, C. (2020a, March 19). Our response to the coronavirus emergency. https://www.ecb. europa.eu/press/blog/date/2020/html/ecb.blog200319~11f421e25e.en.html Lagarde, C. (2020b). One year of the PEPP: many achievements but no room for complacency. In: ECB web. 2. 10. https://www.ecb.europa.eu/press/key/date/2020/html/ecb.sp201102~56603 77b52.en.html Mersch, Y. (2020). Member of the Executive Board of the ECB, speech of 2 November 2020. Legal aspects of the ECB’s response to the coronavirus (COVID-19) pandemic—An exclusive but narrow competence. https://www.ecb.europa.eu/press/key/date/2020/html/ecb.sp201102 ~5660377b52.en.html Paulson, H. M. (2013). On the Brink. Inside the race to stop the collapse of the Global Financial System (478 p.). Business Plus, Hachette Book Group. ISBN 978–1–4555-5190-3. Stamegna, C., & Delivoras, A. (2020, September). Developing a pandemic emergency purchase programme. Unconventional monetary policy to tackle the coronavirus crisis. European Parliamentary Research Services. PE 649.397. https://www.europarl.europa.eu/RegData/etudes/ BRIE/2020/649397/EPRS_BRI(2020)649397_EN.pdf Türk, A. (2017, December). Liability and accountability for policies announce to the public and for press releases. In: ECB Legal Conference 2017. Shaping a new legal order for Europe: A tale of crises and opportunities (pp. 43–58). Frankfurt: ECB. Viterbo, A. (2020). The PSPP Judgement of the German Federal Constitutional Court: Throwing sand in the wheels of the European Central Bank. In: European Papers (Vol. 5, No. 1, pp. 671–685). ISSN 2499–8249.

Johan Schweigl, PhD is a assistant professor and researcher at the Faculty of Law, Masaryk University, Brno, Czech Republic. Johan’s research focuses on legal aspects of monetary policy and legal framework for investments in the EU. Aside from his academic career, Johan has experience from law firm (dealing mainly with cross-border liquidations) and audit. He received his PhD at the Faculty of Law, Masaryk University having defended his thesis on regulation of banking sector in the EU.

Impact of CSR in Brand Equity as a Marketing Tool: A Study on Registered Medium Enterprises of Consumer Durables in Kolkata, West Bengal Mainak Chakraborty and Sourav Kumar Das

1 Introduction Being socially responsible is the responsibility of every corporate house. They need to contribute to the environment they are in. India still bears the flag of being a mixed economy, so, the stakeholders of the business, both internal and external, expect some contribution from the corporate houses towards society other than making a profit. These activities of the corporate houses towards the development of the society and becoming a good corporate citizen are known as Corporate Social Responsibility. CSR activities taken up by the companies are sometimes taken as the marketing and branding tool. CSR activities taken up by the companies include a host of activities, like taking up CSR-related activities for the development of the society, becoming a responsible corporate citizen by doing responsible business, taking up the corporate social opportunity. By discharging these activities corporate bodies analyze the impact on the internal stakeholders like employees, and external stakeholders like customers, vendors, Government, society, etc. along with the impact on the environment. Those companies that have a positive attitude towards CSR activities have a positive impact on the stakeholders. The corporate world is divided into two groups, those who positively take CSR activities, and those who take them for granted or take an opposite side. Those who support CSR sees a longterm perspective and have a larger image of the future and a concept of inclusive growth. They believe that, if they walk with the stakeholder’s hand–in–hand, it will yield positive growth for them. On the other hand, those who are against this think that these are unnecessary expenses and people only believe the quality of the

M. Chakraborty (*) · S. K. Das Department of Management, Adamas University, West Bengal, Kolkata, India © The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 N. Mansour, L. M. Bujosa Vadell (eds.), Finance, Law, and the Crisis of COVID-19, Contributions to Management Science, https://doi.org/10.1007/978-3-030-89416-0_5

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product on which the brand building depends. They also believe that this is a superficial activity and it will deviate the organization from its economic activities, and Government supports this activity to support their inefficiencies in the growth and development of the economy.

1.1

Defining CSR

CSR is defined as a concept in which businesses are paying back what they have taken from society. CSR is also defined as a management concept, in which it has been defined that businesses should pursue their line of business that will be profitable for themselves, along with add value to the society where they exist, as they use environmental resources, both human and inhuman within the society. The purpose of existence of the business should not be defined as to earn an only profit, they need to look after the society from which they are earning a profit, by generating more and more good quality and updated products, more employment from the local people, social services to benefit people, thus becoming a responsible citizen. Social responsibility is also known as the services society expects from the businesses for their betterment and well-being.

1.2

Why CSR Is Important

Companies which involve in active CSR Activities generate more goodwill either directly or indirectly. The importance of CSR can be defined under the following lines: 1. Employee retention is one of the major activities businesses should undertake. Various employee benefit measures will increase the loyalty of the employees to the business thus increasing the productivity of the employees. 2. With the increase of goodwill, companies can gain a larger market share. 3. Beneficial for the company to make its presence count among the giants. 4. CSR activities help to generate more brand equity. 5. Helps in enhancing social development. 6. Helps in inclusive growth prospects. 7. CSR attracts more customers from other brands and helps to build a larger customer base

1.3

CSR: Key Features under Companies Act, 2013

The Companies (Amendment) Act, 2013 requires that:

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1. The CSR reporting rules came into force on 01.04.2014, in which all the companies that have any kind of business activities in India, are obliged to include the CSR funding report in their financial statements. 2. The Annual Financial Statements should include the amount of money spend on CSR purposes by the company. 3. The activities which come under the purview of CSR activities are listed in Schedule VII of the Companies (Amendment) Act, 2013. The definition of CSR is given in a broad sense and the Schedule VII includes all the activities that need to be practiced and all other activities which are not listed but can be included in terms of CSR practice and reporting by the companies

2 Literature Review on CSR To get the theoretical framework for any study and also to study the previous works done, a literature survey is an important tool. Rajput, et al. (2012) in their study, examined the relationship between CSR and financial performance in Indian context. The results stated that there exists a significant association between CSR and financial performance of a company. Fahad et al. (2013) in their study titled, “Impact of Corporate Social Responsibility on Brand Equity (B.E)” focused on examining the correlation between Brand Equity and Corporate Social Responsibility. The results confirmed that there exists a high degree of correlation between BE and CSR. Companies that invest in CSR activities, usually enjoy excellence in consumer loyalty and market sustainablility. Matthew et al. (2014) in their study titled, “The Impact of Corporate Social Responsibilty (CSR) performance and perceived brand quality on customer— based brand preference” highlighted on the intervening impact of perceived brand quality on the association of preference brands and performance of CSR. Paul (2015) in his study titled, “Corporate Social Responsibility in India: A Descriptive Study examined the present status of CSR and its impact on Indian business environment. The study recommended on focusing on 3 Ps- Profit, Planet and people. Dapi and Phiri (2015), in their study focused on determination of consumer attitudes towards CSR programs and the effects of CSR on brand image and brand loyalty. Their study recommended that organizations need to be more transparent on CSR activities initiated by them to customers that ultimately lead to enhancement of stakeholder engagements. Bhattarcharya (2017) in his study examined on how CSR acivities contribute to social transformation with Social identity creation of such brands through generation of social linakages of brands and engagement of consumers for greater Brand Equity. Kumar, et al. (2020) in their study highlights on constructing a base for CSR expenditure as a part of rational self-interest. Their study analyzed that there exists a high degree of positive correlation between CSR and Brand Equity that enhances idiosyncratic corporate success.

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Thuy and Minh (2020) in their study titled, “The Impact of CSR on Brand Image: A Survey Amongst Gen Z Consumers’ Perception Toward A Supermarket Chain in Vietnam”, highlighted on the concepts of Brand Image and quantitative analysis on perception of CSR activities by Gen Z Consumers. And the nrand image of Co. opmart- a supermarket chain located in Vietnam. The results highlighted that CSR activities have positive effects on the brand image of Co.opmart.

3 Objectives of the Study Brand equity is a concern for every Indian business. Small firms are not exceptions to this. The key purposes of this article are: (a) To present with the laws of CSR in India, and (b) To inspect the effect of CSR activities as a marketing tool for medium enterprises operating in consumer durables in the district of Kolkata, West Bengal.

4 Research Methodology The objectives of the study revolve around brand equity and its relation with CSR activities, and to find out that, an exploratory research design is used here. Data collected from secondary sources concerning laws of CSR in India and a structured survey was initiated to locate different activities that are being practiced by the consumer durable sector to enhance their brand equity. The data collected from 255 respondents and for the collection of data convenient sampling is being used. Data is analyzed in SPSS 25, and Mean, Standard Deviation, factor analysis, and regression analysis is used. The demographic analysis presented in Table 1, shows different aspects of the respondents. From the age group analysis, it can be seen that most of the respondents are from the age group of 21–30 years (38.81%). The next two age groups share an almost equal percentage, 16.86%, and 16.08%. Only 4.71% of the respondents are from the age group below 20 years, and 8.24% of the respondents are above 60 years. The gender-wise distribution shows that 52.94% are female and 47.06% are male figures. Almost 66.67% are married and have a family to maintain whereas 33.33% are unmarried. As per the income earned, 36.86% of people are earning more than `35,000 per month. 29.41% of the people are earning between `15,000 to `25,000 and 21.57% people are earning between `25,000 and `35,000. Only 12.16% of people are earning less than or equal to `15,000. Almost 30.98% of people have earned their graduate degrees, while 23.14% of the respondents are postgraduates and 25.49% people are professional others. Only 18.52% of people are undergraduates, and 1.57% of people are with no formal education. 39.61% of the respondents are reported as holding services of either private and government, 21.96% of people are professionals, and 17.25% are business owners. The student

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Table 1 Demographic characteristics of respondents Factors Age of the respondents (in years)

Gender of the respondents Marital status of the respondents Income level of the respondents

Education level of the respondents

Source of income of the respondents

Family status of the respondents Location of residence

Description Up to 20 Up to 30 Up to 40 Up to 50 Up to 60 Above 60 Male Female Married Unmarried Up to `15,000 per month Up to `25,000 per month Up to `35,000 per month Up to `35,000 per month Less than class 10 Class 10 to class 12 Completed graduation Completed post graduation Professionals and others Students Service (Govt. or private) Business owners Professionals Housewives Nuclear Joint family Village Town City

Percentage to total 4.71 38.81 16.86 16.08 15.29 8.24 47.06 52.94 66.67 33.33 12.16 29.41 21.57 36.86 1.57 18.82 30.98 23.14 25.49 17.25 39.61 17.25 21.96 3.92 58.82 41.18 26.67 43.92 29.41

Source: Computed by Researchers using Primary Data Table 2 Test of sampling adequacy

KMO bartlett’s test Chi-square df Significance value

0.850 4123.810 0.233 0.000

Source: Computed by Researchers using Primary Data

respondents are 17.25%, and housewives are 3.92%. 58.82% of the respondents belong to nuclear families, whereas 41.18% of people belong to joint families. Most of the respondents are town dwellers with a 43.92% share, whereas 26.67% of the respondents are the villagers, and the rest 29.41% are from the city (Table 2).

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To understand the quality of the relationship among the factors for 255 respondents, KMO and Bartlett’s Test has been applied. The sampling sufficiency is measured through the KMO test to get the appropriateness of the factor utilization. This test also guarantees whether the information obtained is sufficient for factor analysis. The KMO value fluctuates between 0 and 1. The higher values that are near to 1.0, suggest that factor analysis can be well defined and will show us fruitful information. In the above table, the KMO value shows 0.848 which indicates sufficiency from testing (Table 3). From the above table, five factors have been selected for the factor analysis. These factors are identified as the factors affecting the brand equity for the medium enterprises related to CSR. To investigate the fundamental components associated with all 22 variables, we need to do the Principle component analysis. The analysis was done above reveals that factor 1 has a variance of 44.074%, factor 2 has a variance of 8.965%, factor 3 has a variance of 7.625%, factor 4 has a variance of 5.732%, factor 5 has a variance of 5.275% (Table 4). The above Principle Component and Associated Variable descriptive statistics table reveal five factors with multiple variables. The five factors that are being identified as Customer belief in brand and responsiveness, Customer Loyalty by CSR activities, Customer Inclination towards Brand, Customer Perception about Brand, and Customer Confidence of Brand. These factors carry reliability of 0.898, 0.838, 0.768, 0.750, and 0.749 respectively. These five factors have broadly been identified as the elements which contribute towards building brand equity (Table 5). Predictors: Customer belief in brand and responsiveness, Customer Loyalty by CSR activities, Customer Inclination towards Brand, Customer Perception about Brand, and Customer Confidence of Brand. The above table explains that the value of R is .920 whereas the R square value is .840. This implies that the linear regression analysis explains 84.0% of the variation in data (Table 6). Predictors: Customer belief in brand and responsiveness, Customer Loyalty by CSR activities, Customer Inclination towards Brand, Customer Perception about Brand, and Customer Confidence of Brand; Dependent Variable: Brand Equity. The above table is used to calculate the F test. It can be seen with the F test 256.019 and 5 degrees of freedom which defines the test as highly significant. So, it can be assumed that there exists a linear relationship among the variables (Table 7). The above table indicates the standardized beta coefficient which shows the relationship between the factors that affect brand equity taken as the independent variable, whereas the brand equity is taken as the dependent variable, the value of which is calculated as (
)0.249, 0.103, 0.590, (
)0.017, 0.566, all of which shows significant values except the customer perception about the brand. The t-test is used to measure the significance level of beta and the values are calculated as (
)6.138, 2.773, 15.656, (
)0.496, 15.594. These data reflect that Customer Inclination towards Brand, Customer Confidence of Brand, Customer Loyalty by CSR activities have more positive values than the other factors, which also signifies that these factors have a more positive relationship with brand equity in the case of the consumer durable sector. So, we can conclude that CSR got a very important

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Table 3 Component matrix

Brands with CSR activities can be distinguished from the other brands Awareness about brands implementing CSR policies Logo of the brands with CSR activities can be recalled easily Brands with CSR activities gives me a sense of security CSR activities increase the trust level on that brand New and improved product offering are from brands which follow CSR activities Brands can be identified with a strong CSR presence The brands with CSR are more dependable than the others CSR activities help to create an image in the customer’s mind Brand loyalty exists in CSR practicing brands Products from brands that practice CSR can be purchased without any hesitation The customer service of the brands that practice CSR is effective Brands practicing CSR does not befool the customers Customers will choose the brand with CSR activities in the first hand In comparing between multiple purchase options, the brand with CSR activities will be the first choice Customers social status increase if they are associated with brands that practice CSR Consumer durable companies that practice CSR have a positive impact on consumer mind

Component 1 2 0.534

3

4

5

Communalities 0.571

0.666

0.713

0.759

0.667

0.632

0.744

0.707

0.727

0.629

0.763

0.718

0.760

0.679

0.699 0.571

0.705

0.696

0.659

0.858

0.827

0.522

0.537

0.623

0.726 0.726

0.769

0.790

0.814

0.815

0.829

0.748

0.779

(continued)

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Table 3 (continued) Component 1 2 Brands with CSR activities always produce a good quality product using the latest technology Premium price for CSR activities is not an issue for customers The customer would prefer a brand with CSR handle rather than not with CSR activities Customer will pay more for brands with CSR activities rather than non—CSR brands due to perceived quality and service Overall satisfaction is there with the CSR activity-oriented brands rather than other non— CSR brands Total % of variance Cumulative %

9.698 44.074 44.074

1.974 8.965 53.039

3

1.678 7.625 60.664

4 0.499

1.263 5.732 66.396

5

Communalities 0.675

0.801

0.791

0.521

0.694

0.601

0.712

0.473

0.713

1.161 5.275 71.671

Source: Computed by Researchers using Primary Data

position as a marketing tool in building brand equity. Following regression equation can be drawn from the above table: ðð
Þ0:226  Brand EquityÞ þ ðð
Þ0:293  Customer belief in brand and responsivenessÞ þ ð0:125  Customer Loyalty by CSR activitiesÞ þ ð0:629  Customer Inclination towards BrandÞ þ ðð
Þ0:021  Customer Perception about BrandÞ þ ð0:610  Customer Confidence of BrandÞ:

5 Conclusion The study was taken up to show the impact of CSR activities by registered medium units of the MSME Sector in consumer durable sectors. The CSR laws were enforced to bring a positive change in the business environment. The CSR laws also measure the attitude of the corporates towards the business environment and social

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Table 4 Descriptive statistics

Customer belief in brand and responsiveness Brands with CSR activities can be distinguished from the other brands Awareness about brands implementing CSR policies Logo of the brands with CSR activities can be recalled easily Brands with CSR activities gives me a sense of security CSR activities increase the trust level on that brand New and improved product offering are from brands which follow CSR activities Brands can be identified with a strong CSR presence The brands with CSR are more dependable than the others Customer loyalty by CSR activities CSR activities help to create an image in the customer’s mind Brand loyalty exists in CSR practicing brands Products from brands that practice CSR can be purchased without any hesitation The customer service of the brands that practice CSR is effective Brands practicing CSR does not befool the customers Customer inclination towards brand Customers will choose the brand with CSR activities in the first hand In comparing between multiple purchase options, the brand with CSR activities will be the first choice Customer perception about brand Customers social status increase if they are associated with brands that practice CSR Consumer durable companies that practice CSR have a positive impact on consumer mind Brands with CSR activities always produce a good quality product using the latest technology Customer confidence of brand Premium price for CSR activities is not an issue for customers The customer would prefer a brand with CSR handle rather than not with CSR activities Customer will pay more for brands with CSR activities rather than non—CSR brands due to perceived quality and service Overall satisfaction is there with the CSR activity-oriented brands rather than other non—CSR brands Source: Computed by Researchers using Primary Data

Reliability 0.898

0.838

0.768

0.750

0.749

Mean 32.5260 4.2018

Std. deviation 4.111110 0.66286

4.1819 3.9251 3.9803 3.9488 4.1267

0.60303 0.72807 0.69838 0.69676 0.77654

4.0516 4.1109 21.9012 4.5536 4.3325 4.3915

0.60535 0.58046 21.9012 0.62531 0.61759 0.59850

4.2378

0.64789

4.3836 8.5498 4.1978

0.68379 1.13852 0.61762

4.3520

0.64765

12.4429 4.0832

1.56405 0.69369

4.3006

0.67016

4.0596

0.54232

15.9805 3.8895

2.25633 0.91050

4.0159

0.68411

4.1425

0.73703

3.9330

0.63579

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Table 5 Regression analysis of factors

R R Square Adjusted R Square Standard error of the estimate

0.920 0.840 0.839 0.24888

Source: Computed by Researchers using Primary Data Table 6 One-way ANOVA Regression Residual Total

Sum of Squares 16.177 16.177 92.195

df 5 250 255

Mean Squares 16.608 0.067

F-test 256.019

Sig. 0.000

Source: Computed by Researchers using Primary Data Table 7 Standardized beta coefficient and t-test

Particulars Brand Equity Customer belief in brand and responsiveness Customer Loyalty by CSR activities Customer Inclination towards Brand Customer Perception about Brand Customer Confidence of Brand

Non-standardized coefficients Std. B Error (
) 0.158 0.226 (
) 0.049 0.293 0.125 0.047 0.629 0.041 (
) 0.042 0.021 0.610 0.039

Std. Coefficients β

(
)0.249 0.103 0.590 (
)0.017 0.566

t-test (
) 1.445 (
) 6.138 2.773 15.656 (
) 0.496 15.594

Sig. 0.151 0.000 0.007 0.000 0.623 0.000

(Source: Computed by Researchers using Primary Data); Dependent Variable: Brand Equity

development. It also points out that only profit-making should not be the attitude of the business. Many registered medium enterprises may not have that financial power to contribute towards society, but their willingness to be a good corporate citizen should be there. The CSR Laws give them an impulsion to give it back to the society that they are ruining every day. In the case of MSMEs, there are no full-proof policies to make it possible. Therefore the CSR laws need to be amended so that every business, do some sort of CSR activities that will benefit society. The study identified five factors that affect brand equity, and they are Customer belief in brand and responsiveness, Customer Loyalty by CSR activities, Customer Inclination towards Brand, Customer Perception about Brand, and Customer Confidence of Brand. The Regression Analysis is done to reveal the relationship between the factors and the variables. Brand Equity is selected to be the independent factor. From the data analyzed it can be found that CSR is an effective marketing tool for the businesses which can help to strengthen their customer base as well as the loyalty and brand perception of the customers towards the firm increases. It is also found that

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businesses with positive CSR activities which can be distinctly seen can attract new customers and customers’ expectations of having quality and improved products also increase. So, it can be concluded that CSR activities strengthen the competitiveness of the business.

References Bhattarcharya, S. (2017). Does corporate social responsibility contribute to strengthen brand equity? An empirical study. Springer-Verlag GmbH, Germany. Retrived from https://iranarze. ir/wp-content/uploads/2018/05/E7401-IranArze.pdf. Dapi, B., & Phiri, M. A. (2015). The impact of corporate social responsibility on brand loyalty. Journal of Governannce and Regulation, 4(4), 8–16. Retrieved from https://virtusinterpress.org/ IMG/pdf/10-22495_jgr_v4_i1_p1.pdf Iqbal, F. (2013). Impact of corporate social responsibility on brand equity. Kumar, T.P., Priyadarsini, M.K., & Soundarapandiyan, K. (2020). Brand equity and organization performance: The harmonizing role of corporate social responsibility. Indian Institute of Management Kozhikode. Retrieved from https://iimk.ac.in/research/markconf20/Proceedings/ 74.pdf. Liu, M., Wong, I., Shi, G., Chu, R., & Brock, J. (2014). The impact of corporate social responsibility (CSR) performance and perceived brand quality on customer-based brand preference. Journal of Services Marketing, 28, 181–194. https://doi.org/10.1108/JSM-09-2012-0171 Paul, S. (2015). Corporate social responsibility in India: A descriptive study. Corporate Governance and Business Ethics in Indian Business Environment, Rohini Nandan, pp. 146–155. Rajput, N., Suraj, M., & Mahato, M. (2012). Linking CSR and financial performance: An emprical validation, problems, and perspectives in management. CSR practices in Recent Times, 10(2), 42–49. Thuy, H. T. H., & Minh, H. H. (2020). The impact of CSR on brand image: A survey amongst gen Z consumers’ perception toward a supermarket Chain in Vietnam. Trendy v po dnikani- Business Trends, 10(1), 23–30. Retrieved from https://dspace5.zcu.cz/bitstream/11025/39592/1/4_Thuy_ Minh.pdf

The Evolution of Prudential Rules on Credit Risk Management: From Basel Agreements to IFRS 9 Mohamed Bechir Chenguel and Nadia Mansour

1 Introduction The international financial system has experienced several crises over the past 20 years. Following these events, the committee of central bank governors of the Group of ten created a Basel committee. The main function of this new committee is to establish international rules on banking supervision, the objective of which is to strengthen banking systems (Akwaa-Sekyi, 2020). The Basel Committee on Capital Accord was established in 1988 and has become the international standard to see more closely the financial state of each bank. It was first used by the international banks of the G10 countries then it was practiced by the other countries. Later in the nineties, the world economy experienced waves of liberalization and the globalization of competition increased: merger and consolidation at the level of industrialized economies (Yaacob et al., 2018). The banks, in their turn, have seen a change in their businesses and their practices (Auboin & Blengini, 2019). And have moved towards practices with excessive risk-taking. As a result of these circumstances, financial institutions found themselves obliged to adapt to these new practices. Thus, the new Basel Committee agreement has seen the light of day, with a new prudential supervision process, which ensures that banks have sufficient capital and taking into account all the risks associated with their activities. In addition, it encourages them to implement the right techniques to control the quality of risk (Jones & Zeitz,

M. B. Chenguel (*) Department of Finance and Accounting, Higher Institute of Management and computer of Kairouan, University of Kairouan, Kairouan, Tunisia N. Mansour University of Sousse and University of Salamanca, Research Laboratory Larime, Salamanca, Spain e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 N. Mansour, L. M. Bujosa Vadell (eds.), Finance, Law, and the Crisis of COVID-19, Contributions to Management Science, https://doi.org/10.1007/978-3-030-89416-0_6

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2017). Essentially, the risk management of their banking business is whether a customer may be unable to repay his credit or whether a market is in danger of collapsing. Therefore, effective risk control requires prudential control and credible supervision. Through this research work, we will study the classic approach to risk management, the first section is interested to present the first Basel I agreements with the cook ratio. The second section will study the Basel II agreements and the new dynamic approach to risk management, with the Mc Donough ratio. And Finally, the last section will be devoted to the transition of the risk credit concept from Basel III rules to IFRS and in particular the treatment of IFRS9 for credit risk.

1.1

The Classic Approach to Credit Risk Management: Ratio Cooke

1. Presentation of the Baselcommittee: The Basel Committee was created by the central bank governors of the G10 countries. The members of the Committee come from the following 10 countries: European countries such as France, Belgium, Germany, Italy, Japan, Luxembourg, Netherlands, Spain, Sweden, Switzerland, United Kingdom and American countries such as the United States, Cananda. The Committee has no official supervisory authority, it formulates supervisory standards and guidelines and recommends best practices of the banking system (Mehta & Shakdwipee, 2017). Thus, the Committee encourages convergence towards common approaches and standards without attempting the detailed of member countries’ surveillance techniques (Crutzen & Van Caillie, 2007). The objective of the Committee was to fill gaps in the assurance of international supervision based on two principles: no foreign banking institution should escape supervision and such supervision must be adequate. The Basel committee established, has issued several recommendation papers since 1975. In 1988, the Committee decided to present a system of measuring capital generally referred to as the capital of Basel. This system allows the establishment of a regulatory framework to measure credit risk and impose a minimum capital requirement of 8% since 1992. In June 1999, the Committee published a proposal to revise the adequacy of the regulatory framework for capital. This proposed regulatory framework consists of three pillars: – Equity requirement: seeking to refine the standardized rules that were determined in 1988. – Examination of the process of internal monitoring of the evaluation of an establishment and the capital adequacy. – Reinforcement of market discipline as a complement to surveillance efforts. In recent years, the Committee has increasingly worked to promote sound supervisory standards in the banking system around the world. In 1997, the Basel committee and in close collaboration with many non-G10 supervisory authorities

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developed a set of principles that became the core for all effective banking supervision, and this provided a comprehensive model for a banking system’s effective monitoring. The core principle and methodology which were updated and applied in October 2006 to enable a wider group of countries to be associated with the work being continued in Basel, Committee has always encouraged contacts and cooperation between its members and the banking supervisory authorities (Chenguel & Jouirou, 2019). 2. Objectives and favorable results of the Cooke ratio: The 1988 BaselI accord had two objectives: – strengthen the soundness and stability of the international banking system, – reduce inequalities and increase competitiveness existing between international banks. The introductory memorandum to the 1988 Basel Accord insisted on two major points: – The Cooke ratio determined a minimum level of equity for international banks Also, the 1988 Basel I the agreement agreed that the calculation of the Cooke ratio is the basis. – The Cooke ratio is an indicator of the financial soundness of a banking establishment and therefore of the security of the banking system as a whole. But the Basel Committee did not designate the Cooke ratio as the only risk control indicator possible (Cousin, 2012). (a) The Cooke ratio: its advantages: – its methodological simplicity – its application is relatively easy. The simplicity of this Cook Ratio has encouraged its use and acceptance. The 8% requirement is a communication tool between banks, supervisory authorities, and also market analysts. The Cooke ratio also has the advantage of comparing banks with each other even if there are accounting differences between countries and its implementation is rapid. Also, the 1988 Basel I Agreement provides that the calculation of the Cooke ratio is based on the values for outstanding loans. Moreover, from an economic point of view, although it is a quantitative standard, the Cooke ratio gives banks the possibility of choosing the composition of the portfolio. Financing or the acquisition of assets is accompanied by financial resources guaranteeing minimal shareholder involvement (Marius, 2013). Thus, the Cooke ratio makes it possible to reduce the risk-taking that is inconsiderate by managers or shareholders in a deposit guarantee context. This helps to reduce moral hazard, and increases the responsibility of managers in choosing the composition of their risk portfolio, and also in their minimum capital participation in each commitment granted. Banking stability is then shared between all the players, the shareholders, and the deposit guarantee systems. Thus the Cooke ratio implies security of the deposit guarantee.

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(b) The Cooke ratio: The Cooke ratio has made it possible to require a regulatory minimum of capital, and this is with the help of a simplified risk assessment system. But this ratio presented certain limitations or inadequacies which were noted during the evaluation of the initial objectives. These shortcomings primarily affected banking stability: Indeed, the solvency ratio requires banks to build up an adequate capital cushion for the risks involved. However, the standard weightings do not take into account the probabilities of default of customers and also the evolution over time. Also, the weightings cannot be applied to new financial instruments: credit derivatives, or to guarantee procedures. The Solvency Ratio is initially limited to the quantification of credit/counterparty risks (Figuet & Lahet, 2007). But the market risk has been taken into account for a long time, since 1996, in the development and calculation of the solvency ratio, but still insufficient given that there are other risks. The way to estimate credit risk is rigid and too simple: The risk of debtor default and the rate of loss on the receivable do not appear separately in the solvency ratio: only the weighting of the outstanding (0%, 20%, 50%, 50%, 100%) reflects the degree of risk according to the nature of the counterparty and the quality of collateral attached to the debt. – The types of risk are very simple (state administration, local administrations, credit institutions, others . . .) although there are significant differences in the quality of the signature that can be observed in each category. – a limit may affect the Solvency Ratio, which does not take into account the initial or residual maturity of the outstanding: under the Basel Accord, outstanding on non-OECD banks are weighted at 20% if their residual term does not exceed 1 year, 100% if they exceed 1 year. It is mainly over-the-counter interest rate and foreign exchange derivative instruments that benefit from the most differentiated regime according to the residual term. Other limitations touched on the following aspects: – The measure of the risk of loss is static (not dynamic): the evolution of the quality of the signature is not taken into account. – The solvency ratio does not take into account the concentration of risks on signatures, sector diversification, and other risks such as interest rate risk, operational risk, reputational risk,, and systemic risk. – The Cooke ratio also does not take into account and excludes the internal functioning of the bank. Other limitations of the 1988 Basel I agreements are as follows: – The Basel I agreements only affect the banking sector. – The Basel I agreements are only concerned with bank capitalization and not the capitalization of bankers in the case of holding companies. – The 1988 Basel I Agreement does not tie the funding standard to the supervisory standard.

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– The Basel I agreement does not provide a link between the evolution of regulations and the evolution of accounting standards. And finally, the Cooke ratio, which imposes and fixes a minimum level of funds for each bank not to be spent, and with an estimate of the potential losses to be covered by a set of assets for credit risk, does not take into account other risks. It was thus one of the most important reasons which prompted the Basel committee to revise and review the Cooke ratio to institute and establish new prudential standards making it possible to better assess, control, and quantify banking risks (Tiesset & Troussard, 2005). 3. The dynamic approach to credit management: Ratio Mc Donough (a) The Basel II Accord: The ultimate goal of the Basel Committee is to ensure the stability and strengthening of the international financial and banking system and improve global competition between banks by harmonizing capital requirements in different countries. Thus, in 1999, the Basel Committee launched a new reform of the Cook ratio which dates back to 1988 to adopt the new Basel II accord. The objective of the new agreement was to strengthen the supervisory system to ensure the stability of banks’ activities. The old solvency ratio will be replaced by the new Mac Donough ratio which is a management tool and a capital adequacy instrument. The Basel II project defines a new system for calculating regulatory capital that each banking institution must adapt to face its risks. The Basel agreements have defined a set of rules and calculation methods, the objective of which is to define a level of mandatory capital. These rules were able to integrate the following three types of risk: credit risk, market risk, and operational risk. The objective of the reform was to strengthen equal competition and capital requirements to the underlying risks. The importance of the new Basel II agreement lies in its universal dimension: it can be applied to all banks regardless of their size, level of complexity, or country. (Baud & Chiapello, 2017). The Basel committee presented this reform with the following three fundamental pillars: – Minimum capital requirements to take account of banking risks – strengthening of prudential supervision – Communication of financial information: improvement of market discipline. Since the application of Basel I, the financial markets have profound changes, particularly in terms of risk management. Certain financial techniques have developed, and the modernization of the practices adopted by banks to measure risks made it necessary to completely revise the foundations of the BaselI agreement (Khemakhem & Boujelbene, 2015). Following these changes, Basel II is proposing new capital adequacy and requirement system which will be adapted to the new context of international markets and which also takes credit risks into account. The new Basel Capital Accord can be summarized in the following table:

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Pillar I: requirements minimum equity Equity calculation regulatory under credit risk – Standardized approach – IRB approach * simple IRB approach * IRBcomplex approach Equity calculation regulatory under operational risk (new) – Approach to the basic indicator

Pillar II: process of prudential supervision The margin of appreciation of supervisory authorities – Qualitative elements – Methods of evaluation of risk and standards

Pillar III: market discipline Information publications relating to – Equity allocation – Credit risk – Market risk – Operational risk – Securitization – Risk assessment methods

– Standardized approach – Advanced approach (system of internal measurement),

Pillar I: the Minimum Requirements in equity well renovated: – Capital adequacy standards are renewed and introduced to improve and take into account the risks but without modifying the overall level of capital required. Calculation of the ratio: the ratio between equity and outstanding risks. As for the Cooke ratio, the capital requirement is maintained at 8%, and the contribution of this reform lies in the modification of the assessment of new risks (Rochet, 2004). There are thus three new types of risks that will be taken into consideration: Credit risk, market risk, and operational risk; and two new evaluation methods will be used: – The standard method – The internal scoring method 1. Approaches for calculating credit risk: The main objectives of Basel II were to calculate the capital requirements for credit risks. The new agreement thus proposed two calculation methods, which presented certain sensitivity to risk and took into account several degrees of weighting (Varotto, 2011). a. The Standardized Approach: This is a method considered standard, which consists of using analyzes carried out by rating agencies and once validated by prudential regulations (Mansour & Zouari, 2018), will be used as a basis for the implementation of fund requirements (Wyatt, 2003). The use of external evaluators is, therefore, explained as follows: – Agencies have important historical data on major borrowers. – Agencies have wide access to information from issuers, which makes the standard approach more rational and less costly than that assessing separately by each lending institution. – This approach has the advantage of providing quantitative information on borrower risk on a comparable basis.

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– Commitments are broken by different asset categories and are classified into risk classes based on ratings provided by external rating agencies. A new weighting on commitments has therefore been put in place: – For States, the weighting rate has the following values: 0, 20, 50, 100, 150% and is based on the ratings of specialized agencies (rating agencies, etc.). – For banks, the Basel Committee still has to choose between 2 types of risk: – either a single and collective risk linked to the risk of the country, or an individual risk dissociated from the risk of the country. – For public authorities, the risk is identical to that of banks with a privileged weighting granted by the country’s authorities and which can be taken into account. – For companies, the weighting rate takes the following values:20%, 50%, 100%, 150%. Internal rating-based approach: Internal rating-based approach: The main innovation of the new reform is the introduction of internal rating systems. This is an approach that strengthens the accountability of institutions while taking into account the complexity and diversification of banking activity, taking into account the difference between types of activity and types of establishment. The objective of this approach is to lead banks to develop new methods of measuring the probability of default (Varotto, 2008). This is what gives the new device a flexible character. The new approach, which is based on the internal rating, therefore appears to be a complete system since it deals with all counterparties, regardless of their weight. Also, this method studies not only the probability of default but also the repercussions after failure. Approaches proposed for the calculation of market risk: Among the practices used to reduce market risk, it is the use of instruments such as financial collateral, guarantees, clearing, etc. Approaches proposed for the calculation of operational risk: This is the new solvency ratio. This risk is linked to the human factor, systems, and procedures or other external factors such as legal risks, and image risks. Thus, operational risk should represent 20% of the 8% ratio. The three approaches proposed by the committee for the calculation of operational risk: The new system offers three approaches for calculating minimum capital requirements for operational risk: – Basic approach: equity is calculated in proportion to the overall banking product. This consists of using a fixed weighting coefficient (15% fixed by the committee) to the net banking income. Requirement ¼ total net banking income  15% (Cucinelli et al., 2018). – Standard approach: the requirements are decided in proportion to the banking product differentiated according to eight business lines averaging weightings given by the regulators assigned to each business line. Eligibility criteria must be met for the application of this method. They take into account the quality of the risk management system and the monitoring of loss data.

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Weighting (%) 18 18 12 15 18 15 12 12

Pillar II: Prudential supervisory process: The second pillar emphasizes the way banking supervisors use their controls. Indeed, control authorities and even supervisors can perform their checks to encourage the use of the computerized computer security assessment tool. Also, they ensure that the capital of any bank is properly proportional to its profile or level of risk. If the bank has not met the minimum requirements, they can intervene. The role of regulators is to exercise significant control, with the possibility of examining all establishments individually, and this based on the following rules: – A global risk analysis of the establishments inspected. – An appreciation by the banks of their funds. – A comparison between economic capital and regulatory capital following a prudential review of the calculation of the first category. – Control of internal procedures and methods used for the allocation of funds and intervention when necessary. – The authorities are authorized to impose individual capital requirements higher than the regulatory minimum determined in the first pillar while taking into account the risk profile of each institution. The reform thus initiated, therefore, widened the risks: the Cooke ratio has evolved and has already integrated market risks in 1996, but other risks such as interest rate risk or operational risk are still not taken into account: they will be applied in the new regulatory framework. Pillar III: Market discipline: Pillar III: Market discipline: Market discipline is designed to make it mandatory for banks to periodically publish detailed quantitative and qualitative information on their risks and the adequacy of their funds (regular reporting). Thus, greater transparency is required in the communication of financial information especially that relating to the structure of funds and the risks incurred. This becomes an important and above all essential condition for new banking practices which must be secure. All this will accentuate the supervisory power of the authorities and their legitimate use of the sanction. The dissemination of significant information by banks will bring new information to stakeholders and will facilitate the exercise of effective market discipline. Thus an improvement in transparency will have advantages for well-managed banks, investors, and depositors as well as for the financial system in general to avoid systemic risk(Flannery &

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Bliss, 2019). This is why the equity will have to cover all risks, namely credit risk, market risk, and operational risk. The new solvency ratio will be as follows: McDonough ratio ¼ Equity=ðCredit þ market þ operationalÞrisks The new Basel II requirements will have to advance control practices and especially monitoring of operational risks in banks, and also the monitoring of other risks, such as credit and market risks. BaselII: Operational risks: One of the main novelty and contribution of the Basel II agreement compared to Basel I, was in addition to requiring the allocation of funds to cover operational risks but also to use a new system of operational risk management. To define operational risk, according to the Basel Committee, we can say that it is the risk of direct or indirect losses following a failure of procedures, internal systems, people, or even external events OECD (2016). The Basel II capital calculation system offers banks increasingly complex calculation methods. Each chosen method must be used in the same banking group. The basic indicator makes it possible to apply a fixed ratio estimated at 15% to the Net Banking Income of the last 3 banking years. Thus The standard approach makes it possible to apply a coefficient which is different, and which depends on the types of activity. The use of this method requires having data that are well quantified on the losses supported by each business line according to the operational risks. And finally, the advanced approach allows the banking establishment to build its internal method of assessing operational risks. Once the method has been chosen with the new application conditions such as the presence of a centralized risk control structure, and the frequency and relevance of reporting, etc. all this will then be submitted to the regulator for approval. Using this method requires the following data: – – – –

Data on internal losses (specific to the establishment) Data on external losses (databases on the entire profession) plan and carry out the analysis of potential scenarios. Analyze factors related to the environment and internal control

The choice of the method necessarily requires a greater investment at the beginning but also makes it possible to reduce the capital requirements (Chernobai et al., 2008). 4. Objectives and Presentation of the Mc Donough ratio: The regulations have been geared towards a more realistic assessment of the risks and equity required by banking activity. The Baselcommittee, chaired by Mr. Mc Donough, decided to reform this regulation in 1999, which should apply from January 1, 2007. A new solvency ratio has been created called the Mc Donough ratio. This ratio is calculated like the cook ratio: “equity/risk” which always remains fixed at 8%. But the contribution of this ratio lies in the inclusion of operational risk in the capital requirement, with the risk requirement depending on its nature (credit risk counting for 75%, operational risk for 20%, and market risk).

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Mc Donough ratio ¼ Equity=ðCredit risk þ operational risk þ market riskÞ > 8%: The new regulations proposed by BaselII thus correct the non-compliant pricing of loans to BaselI by allowing banks to place their capital needs according to a company’s credit rating. The BaselII committee, therefore, takes into account the effects of portfolio diversification: the expected minimum equity requirement is greater for a portfolio comprising assets with a high level of default correlation. The new approach allows a calculation of the probabilities of failure of each customer and the loss suffered in the event of default. This new approach then makes it possible to distinguish both expected average losses and unexpected losses. The comparison between the BaselI and BaselII ratio shows that the Cooke ratio requires banks to define minimum equity capital according to their commitments and are not only sensitive to credit volumes while the new Mc Donough ratio is totally sensitive. The Variations in the quality of counterparties through their rating, as well as volumes. And the shift from a quantitative measure of risk to a qualitative measure allowed a clearer definition of risk, and above all better localization, which will lead to better ex-ante control. In this way, bank partners will have a better view of risk management. And if banks do not provide sufficient and adequate information, the sanction of their customers and the market will be immediate (Afambo, 2006).

1.2

The Advantages and Contributions of Basel II

a. Contributions to the credit market: The new Mc Donough ratio takes into account the capitalization rate required for the distribution of credit, so this new solvency ratio has a very significant effect on the demand and supply of credit. The required capital ratio will increase with the probability of default, and therefore the decrease in the supply of credit will be smaller for low-risk companies. Thus, the Mc Donough ratio will discourage the riskier companies from applying for loans because of the reaction of the bank’s required capital to the probability of default (Atik, 2010). b. Contributions to financial stability: This new solvency ratio will strengthen financial stability and its implementation with the capital requirement rules will reduce the bank’s risk of not covering credit costs. According to the BaselI agreements, with the level of the Cooke ratio, banks will consume more equity, while with the new Mc Donough ratio, this amount is devoted to the probability of default of borrowers. The new ratio is considered to be the most important indicator of the bank’s management, it takes into account the evolution of risk, which constitutes a guarantee of the bank’s responsiveness and tits financial stability. To this we can add that the new agreement protects banks from bankruptcy through capital standards that are more flexible and better suited to the different risks involved. c. Contributions on the assessment of default risk: The Mc Donough ratio always tries to bring regulatory capital closer to economic capital to allow risk

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management. Indeed, the Basel II committee imposes the new solvency ratio which makes it possible to link the required capital of the bank with the probability of default of borrowers and thus it grants an adjustment on banks’ risk-taking. The costs of credit will depend on the likelihood of the risk of default, and the supply of credit to risky borrowers will be reduced, thus the likelihood of default decreases. Consequently, the bank will rigorously study the risk of default of borrowers by what will affect the cost of credit and the amount of its capital that will be attached to it. Moreover, the Basel Committee has emphasized the assessment of credit risk, which represents the primary source of risk and therefore the main factor in allocating banks ‘funds to preserve shareholders’ rights.. It is obvious that the providers of funds demand a rate of return because they consider that their funds which cover the risks of the activity should be remunerated (Chorafas, 2004).

1.3

From BaselIII to IFRS

The BaselIII and IFRS standards present interactions on provisions for credit risk, which enable definitions to be pooled (concept of estimated loss, probability of default, etc.), modeling models, and various data (Ozdemir, 2018). These reconciliations must be exploited, even if differences: The introduction by the BaselCommittee of new Basel III rules comes at the same time as the changes in IFRS accounting standards. As the two standards have different objectives, total convergence is not possible. However, beyond the calendar, several interactions exist between: – the accounting framework – the prudential framework. These interactions are marked concerning provisions for credit risk for which they are assessed at different levels: use of credit data, financial reporting, management of regulatory capital, and business decisions. Taking these convergences and their limits into account will make it possible to optimize the processing of changes (Ecaterina, 2015). 1. Evolution in IFRS standards: The IASB and the FASB continued to unveil new provisioning rules and to be implemented under IFRS and US GAAP. The new model is based on a defined approach, as the “three buckets expected loss approach”. Its objective is to reflect the deterioration of credit risk more markedly in the level of provisions. This model, described below, is based on the use of expected loss data for the entire portfolio, the estimated loss duration to be taken into account varying according to the “bucket” concerned. The financial institution must prepare its estimate of expected credit losses for their remaining life or for a horizon set at 12 months, taking into account all available information (Elena et al., 2020). The IASB thus proposes a list of general and specific indicators, which include in particular changes in the existing economic environment, in the performance of the entity and of the debtor, and the evolution of the value of the guarantees received.

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Although the objective of this approach is to reflect the deterioration of credit risk, the transfer between “buckets” remains based on an appreciation and could result in different applications by portfolio and by-product. It is uncertain at this stage that the criteria that the IASB wishes to define to illustrate theconcept of “reasonably possible that not all cash flows would be recovered” are sufficient to allow consistent application between the different entities. The IASB also reviewed criteria for grouping assets that would be based on similar risk characteristics. The approach based on expected losses should be welcomed, as it represents an approach already widely used by credit institutions for retail loans and is closer to the prudential concepts defined by the BaselCommittee. At this stage, this “three buckets expected loss” approach would concern retail loans, trade loans, and bonds. 2. Prudential developments: The new Basel III provisions aim to strengthen the financial system, in particular by improving the coverage and management of credit risk. This reform should be implemented by 2019. Thus, an adjustment is planned to cover the insufficiency of provisions to cover the expected losses defined by the regulator (Hossfeld et al., 2020). A deduction is made on the difference between the expected losses on exposures treated in the internal model and the amount of credit risk provisions made on these exposures. This deduction is recognized as follows: 50% on Tier 1 and 50% on Tier 2. Under Basel III, this regulatory adjustment is still relevant. However, the deduction will be made at 100% on Tier 1 and the potential gain (provisions for credit risk greater than the expected losses) will be made at 100% on Tier 2 (with a limit calculated according to the “Risk-Weighted Assets” (Allen et al., 2012). Pools: Standard and prudential changes interact directly with the schedule and the concepts used. These interactions will have consequences on the conduct of the reconciliation between the accounting and risk areas of credit institutions. They are linked to common definitions (concept of estimated loss, probability of default, LGD, etc.), models that can be used in both cases (credit risk modeling), common data (exposure, rating), and information. First, the change in standards induced by IFRS 9 will base the accounting provision on a notion of “estimated loss”, as opposed to the concept of “proven loss” which prevailed under IAS 39 (Ecaterina, 2015). Basel II and Basel III also use the concept of “estimated loss” for the calculation of the capital requirements of outstanding using the “IRB” method. In both cases, this concept consists of an estimate on a historical basis of the losses that may be incurred as part of a loan granted. It is calculated by modeling the probability of default, or loss with the credit conversion factor. The probability of default is based on the central definition of “default” (Ozili, 2019). The accounting standard does not repeat this definition but uses the criterion of “doubtful”. Alignment of definitions is, therefore, necessary to use the Basel II models for IFRS. The Differences persist: However, major differences in definitions persist despite everything: The probability of default under Baselis “through the cycle” corresponds to the cycle average, conversely, the probability of accounting default must correspond to the best estimate at the “point in time” closing date (Bholat et al., 2018). The probability of Basel default is systematically within 1 year. According to the

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3-bucket model developed by IFRS 9, the provision for bucket 1 is one year while the provision for buckets 2 and 3 is calculated on the maturity of the loans. The loss in the event of a regulatory default is in turn (ie corresponding to a bottom of the cycle) while the loss in the event of an accounting default is also a “point in time”. Alignment of definitions allows or even requires alignment of calculation models. Indeed, the portfolios processed using the advanced method under BaselII / III are modeled to calculate a PD, an LGD, and a CCF (used only for portfolios processed using the “foundation” IRB method). To ensure consistency between the estimated accounting and regulatory losses and thus be able to justify discrepancies, these models must have the same source (Engelmann and Pham, 2020). As the definitions and models are, despite the limitations mentioned, similar, the data required are also identical. The process for calculating the accounting provision can therefore be modeled on the regulatory feedback process. These processes will result in an estimated loss for each portfolio from the credit data, after making adjustments. However, the outstanding that are the subject of provisioning are the book outstanding. The regulatory outstandings used in the calculations must therefore be reconciled with the accounting outstandings. Finally, the information required for the accounting notes and defined by IFRS 7 also interacts with the information requested in Pillar III. Thus, IFRS 7 requires the publication of data concerning exposure to credit risk, guarantees obtained and sensitivity analyzes. These data are also needed for Pillar III. Reconciling credit risk management methods: Overall, these new interactions are rather positive, in that they will enable risk and finance professionals to work together by reconciling their credit risk management methods. A total disconnection like the one that currently exists—insofar as Basel II already provides for an “expected-loss” approach while IAS 39 provides for an “incurred-loss” or incurred loss approach, should be avoided (Bruno et al., 2016). The implementation schedule calls for the prompt attention to identify these interactions and set up coordinated adoption plans. As the texts are not yet final, several points still need to be clarified, which complicates the task but should in no way constitute an argument justifying the postponement of these projects. 3. the new IFRS 9 and credit risk management: From Basel III to IFRS 9: The last financial crisis of 2008 highlighted the deficiencies of the provisioning method enacted by IAS 39. The entry into force of IFRS 9 will require banks to establish provisions for losses, even for healthy loans. The new standard introduced a new logic for classifying and measuring financial assets, especially in banking activity (Ozdemir, 2018). The accounting standard IFRS 9 provides for new rules for calculating provisions for credit risk. The provisions will cover the depreciation for credit risk, the provisions for credit risk as well as the credit risk recognized in Other Comprehensive Income for assets valued at fair value by recyclable OCI. This new IFRS9 standard provides for the classification of instruments into three “buckets”, with calculation rules very specific to each of them: – Bucket 1 concerns healthy outstandings: credit risk taken into account up to the expected loss at 12 months;

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– Bucket 2 concerns sensitive outstandings: taking into account the credit risk up to the expected loss at maturity; – Bucket 3 covers non-performing outstandings: credit risk is taken into account by the calculation of individual depreciation defined by IAS 39 (Andasarova, 2016). IFRS 9 came into effect on January 1, 2018. Even if the international accounting standards apply to all institutions regardless of their activities. Banking institutions and IFRS 9: This standard requires banks to provide their credit risk even before it is proven, without any payment incident having been noted. Provisioning further upstream the credit risk induces a reduction in bank results. However, this increase in provisions is not without compensation since it involves recording losses previously considered unexpected and therefore framed by the solvency ratio provided for by the Basel III agreements and transposed into European law. In other words, we will see a game of “communicating vessels” with, on the one hand, more provisions impacting the bank’s results, and on the other hand, less prudential capital required (Elena, et al.,2020). a. The impact of IFRS 9 on credit risk management: Compliance with IFRS9 by banking establishments is the responsibility of the Statutory Auditor. And even internal auditors are required to comply with IFRS9 standards. Indeed, regardless of the accounting aspects, IFRS 9 requires the banking institutions concerned to prepare themselves even more upstream for possible credit risks. Of course, the banker must always assess the probability of default of his client even before paying him the funds. This allows the bank to determine the part of the interest on the loan that will be used to cover the risk represented by the customer (Beerbaum, 2015). There is therefore an asymmetry in the rate of coverage of credit risk, between income received each year, a part of which covers expected losses which, if they occur, make what covers them disappear . . . The Basel Committee, by requiring banks to funds, sought to overcome this gap. The IASB, the intuition responsible for drafting IFRS, has gone further by recommending that interest be recognized over the same periods, including credit risk premiums and the estimated amount of the corresponding inherent losses. This adjustment, the purpose of which is of an accounting nature, affects how credit risk is understood and measured, and therefore of the manager. Suffice to say that the application of IFRS9 also concerns internal auditors. b. Audit the measurement of credit risk for sensitive loans: The application of IFRS 9 for the treatment of credit risk requires the classification of outstanding loans into three groups called a bucket, with each of them very specific rules. These breaks must be based on effective processes for identifying the various risks (Frykström and Li, 2018). The internal auditor, for his part, will oversee the application of these measures and also their effective implementation. He will be particularly interested in the major change introduced by IFRS 9 compared to Basel III. Indeed, a banking institution is required to provide for the expected loss over the remaining term of the loan when an adverse event has occurred even before it is a proven risk factor. This difference will not be without financial consequences for the banks concerned.

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Accounting for credit risk based on the maturity of the loans concerned leads to an increase in provisions, and therefore a decrease in net income, greater than the capital requirements determined according to a loss horizon of 1 year (Bruno et al., 2017). The stake is for banking institutions since internal auditors must ensure that their institution can correctly identify loans according to the categories provided for in IFRS 9 and to measure the associated risks.

2 Conclusion Financial crises, accounting manipulations, a difficult context for analyzing and investing in a company: all of these reasons have prompted investors and financial analysts to demand the advent of an international accounting framework. Following the 2000 crisis (ENRON and WORLDCOM (accounting manipulations)), the European Union decided to improve the homogeneity and comparability of the financial statements of companies in the area by creating a common accounting framework. It is the European regulation of 19/07/2002 which imposed the application of the international accounting standards IFRS itself previously established by the IASB (International Accounting Standard Board). At the same time, central banks have been organized in 1974 in a working group called the Basel Committee to promote the harmonization of the rules and practices of supervision of banking operations. The BaselCommittee has made numerous recommendations aimed at ensuring the stability of the international banking system by setting a minimum threshold for banks’ funds. In the same context, the financing of SMEs by bank credit is the subject of many concerns which have always affected credit institutions. The bank still runs this risk of default, and to cover itself, banking establishments have to apply and comply with the new prudential directives. These new credit risk management regulations were developed to prevent counterparty defaults and to ensure the stability of the entire banking system. It is within this framework of prudential regulation (Mansour et al., 2021) that the Baselagreements were born, moving from BaselI to BaselII, BaselIII to IFRS 9, the bank will thus be able to manage its risks internally using an approach. Based on the internal rating, to prepare an internal estimate of the probability of default of its customers (occurrence of credit risk). Thus, the transition from accounting from a recognized loss model to that of the expected loss model with IFRS 9 aims to bring the accounting logic closer to the prudential logic for better risk taking into account. This is an important step forward for the international accounting standard-setter who demands prudential objectives of stability with the classic objectives of harmonizing accounting practices and improving information. However, this merger should bring together prudential management approaches and accounting management. Thus, accounting is approaching the objectives of stability and must retain its role of ensuring accurate information. Between IFRS and Basel, what are the main convergences and divergences? The points of convergence: Improve transparency, by requiring listed companies to present accounting and financial standards that are understandable

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and accepted by everyone. These standards are developed by the IASB (International Accounting Standards Board). The IFRS framework is used by users of financial information regardless of investors and analysts to provide more transparency and comparability. Regarding risks, one of the main activities of banks is the provision of loans to individuals, professionals, businesses, and communities. This business involves a risk of default by the borrower. The BaselCommittee recommends that banks put in place and improve tools to assess, measure, control, and monitor creditrelated risks (BaselII pillar 2). For its part, IFRS requires companies to provide information in the accounting appendices to allow investors to better understand the risks. IFRS tries to better show a deterioration of credit risk in the level of provision and the changes related to BaselIII aim to improve the coverage and management of credit risk. BaselII and III, therefore, use the concept of “estimated loss”, like IFRS 9. For the differences between Baseland IFRS, these differences are manifested in the coverage of credit risks, in fact, under IFRS, the credit risk must be provisioned only in the event of a “proven” risk and the provisions cover the losses incurred. The incurred losses (IFRS) correspond to past events showing that the company will suffer a loss in the future. In contrast, according to BaselII, provisions must cover “expected” losses. Expected losses are anticipated losses, even in the absence of tangible evidence. As for the IFRS standard, it offers an identical benchmark to improve comparability between each company, while BaselII encourages banks to have a more detailed approach to credit risk by using an internal rating system rather than using the formula “Standard”. Regarding equity, the IFRS standard incorporates “fair value”. IFRS standards challenge basic accounting principles. Indeed, “traditional” accounting recorded the acquisition of a good and only returned to this so-called “historical” value when it was sold. Today the principle of fair value obliges, if one is aware of it, to record a possible loss to show investors and analysts the economic reality of the company’s assets. BaselII requires a minimum of equity capital (in 2014 8% going up to 10.5% in 2019) to prevent the risk of crises while the IFRS reference system modifies the level of equity by integrating elements valued at fair value. For example, the securitization of loans puts them in off-balance-sheet accounting and limits banks’ funds need to provision for risk. This fair value basis involves changes in shareholders’ equity depending on the valuation of the financial instruments. While Baseladvocates strengthening equity capital to bring stability (Mansour & Zouari, 2019) to banks in the face of crises. It can be said that the IFRS and the Baselagreements have the same vocation of creating international coherence to clarify and improve international interactions. The accountant and the regulator continue to evolve the processes to avoid new crises. Declaration of Conflicting Interests The authors declare that there is no conflict of interest.

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Under Pressure: Integrating Policy Interventions to Save Distressed Indian SMEs of COVID-19 Aftershocks Rashmi Rai

and Lakshmypriya K.

1 Introduction MSMEs are known to be a source of global economic growth to achieve equal development. MSMEs exist in every country, regardless of their economic situation (developed, emerging, and developing). The key benefit of the industry is its prominent role in industrial output, exports, and, most crucially, the development of low-cost jobs. Small enterprises have a significantly higher labour density than large organisations. In most countries, MSMEs make up more than 90% of all businesses. They are responsible for the highest employment creation and a large proportion of industrial production and exports. (Rakshit & Paul, 2020). The Indian Government was considering changing the MSME definition even before the COVID-19 pandemic broke out. Small-scale businesses were said to be hostile to the revision because they saw it as a threat to their business from larger firms that would be eligible for size-based incentives such as bank funding at a reduced rate (Tables 1 and 2). The current crisis in the economy is ideal for enacting reforms without facing opposition. Current MSMEs criteria, which focused primarily on investment, were considered mainly as suffocating small business growth. The most vulnerable sector of the Indian economy has long been the MSME market. MSMEs face a host of difficulties in their everyday functioning and in terms of industry maintenance. Some of their key concerns are non-registration as most MSMEs, due to the limited size of their establishments and lack of information regarding the registration process. Most of the MSME are unorganized and are therefore not expected to keep accounts to pay taxes or comply with regulatory requirements. This undoubtedly takes their costs

R. Rai (*) · Lakshmypriya K. Christ University, Bengaluru, India e-mail: [email protected]; [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 N. Mansour, L. M. Bujosa Vadell (eds.), Finance, Law, and the Crisis of COVID-19, Contributions to Management Science, https://doi.org/10.1007/978-3-030-89416-0_7

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Table 1 Former definition of MSME (MSME, 2021) Classification Manufacturing enterprises Service enterprises

Micro Enterprise Investment up to Rs. 25 lakhs Investment up to Rs. 10 lakhs

Small Enterprise Up to Rs. 5 crores Investment up to Rs. 2 crores

Medium Enterprise Investment up to Rs. 10 crores Investment up to Rs. 5 crores

Table 2 Revised definition of MSME (MSME, 2021) Classification Manufacturing enterprises and service enterprises

Micro-Enterprise Investment up to Rs. 1 crore and turnover < Rs. 5 crores

Small Enterprise Investment up to Rs. 10 crores and turnover < Rs. 50 crores

Medium Enterprise Investment up to Rs. 50 crores and turnover < Rs. 250 crores

down but decreases the Government’s willingness to provide funding. Lack of funding creates barriers as most of their loans come from informal sources, leading to higher borrowing costs; among the other challenges, MSME faces lack of advanced technology, marketing channels, and low revenue. By the end of 2020, more than 75% of SMEs are experiencing or forecasting revenue decrease. The revenue losses can be significant in some circumstances. According to a recent survey of entrepreneurs, one-third (33%) of businesses expects to lose more than half of their profits, and the situation is unlikely to improve.

2 Literature Review The present Covid-19 crisis and falling economic development have pushed emerging countries such as India into a volatile market environment. India has the highest number of active corona virus cases between April to June 2021, leading to an intense second wave of the pandemic. Rising unemployment, inadequate consumption, and decreasing industrial output and prices were already wreaking havoc on the economy. Before COVID-19, the economy was experiencing sluggish growth, exacerbating issues such as rural hardship, starvation, and vast inequality (Rakshit & Basistha, 2020). Lockdowns have had disastrous economic consequences, resulting in job losses of the labourers, vendors, and other daily wage workers living below the poverty line and the possibility of deaths due to this virus (Mukherjee, 2020). (Rathore & Khanna, 2020) A Survey of 361 MSMEs shows distress among these enterprises. On an average the reported losses amounted to 17% in 2020. Historically, the industry has lacked access to inexpensive institutional credit, with most MSMEs being self-funded and only a tiny fraction being able to obtain institutional funds (Dev & Sengupta, 2020). Dev and Sengupta (2020) suggest in a recent study that both demonetization (2016) and GST (Goods and Services Tax)

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(2017) had negative consequences on MSMEs in India, which were aggravated by the Non-Banking Financial Company crisis of 2018.

2.1

Pre Covid-Scenario of MSME in India

The micro, small, and medium business sectors have played a significant role in expanding the entrepreneurial base by supporting grass root level and corporate innovations. MSMEs are broadening their economic area of influence by manufacturing a varied range of goods and services to fulfil native and foreign market demands. Indian MSMEs produce around 6000 products, including conventional and high-tech economy goods (Reserve Bank of India, 2019).This industry is vital to the Indian economy since it creates many jobs at a cheaper cost of capital than large-scale firms and promotes industrialization in rural and remote areas., eliminating regional inequalities and bridging the rich-poor divide. (Micro, Small and Medium Enterprises Ministry, 2019). Efforts to promote and develop international awareness of the “Made in India” badge in markets worldwide are projected to boost demand for goods and services over the next decade. MSMEs would benefit from such programs that allow them to exhibit Indian products and brands at foreign trade events. MSME participation in global markets has helped them build their businesses while increasing their international competitiveness. (Source: 2015 KPMG Report) In the 2011–2012 fiscal year, MSME-related products accounted for 49.81 percent of all India exports, according to data from the Directorate General of Commercial Intelligence and Statistics (DGCI & S) (Annual Report MSME, 2013–2014). Until the end of December 2019, globalization presented manufacturing MSMEs with various obstacles, but it also provided numerous chances for the industry to grow. The majority of MSMEs are in the informal economy, and the number of such businesses in the official economy must be raised. Entrepreneurs in this area should be encouraged to register their companies with the Ministry of MSME, giving them more access to Government, banking, and other organizations’ various efforts. (Richa Shelly et al., 2020). The below Tables 3 and 4 shows the bifurcation of registered Manufacturing and Service Industry distribution of MSME sector in percent. Table 3 Percent of registered manufacturing and service industry distribution of MSME sector (MSME, 2021) Particulars Registration of MSME Distribution of MSME Total employment

Statistics of MSME Sector Manufacturing 865,058 (62%) Micro-93%

Services 537,677 (38%) Small 6%

Male 264.92 lakhs

Female 844.68 lakhs

Medium 1% Total 1109.6 Lakhs

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Table 4 Distribution of registered MSME in manufacturing and services enterprise (MSME, 2021) Distribution of Registered MSMEs in Manufacturing Enterprise Food products

Percent distribution (%) 12.30

Textiles

10.80

Crop and animal production, hunting, and related service activities Other manufacturing

10

6.50

Wearing apparel

6.50

Fabricated metal products, except machinery and equipment Machinery and equipment Rubber and plastics products Chemicals and chemical product Non-metallic mineral products Repairing and installation of machinery and equipment Others

4.40

3.40 2.70 2.50 2.50 2.50 35.50

Distribution of Registered MSMEs in Service Enterprise Office administrative, office support, and other business support activities Wholesale trade, except motor vehicles and motorcycles Retail trade, except motor vehicles and motorcycles Land transport and transport via pipelines Other professional, scientific, and technical activities Travel agency, tour operator, and other reservation service activities Education Other financial activities Repair of computers and personal and household goods Other personal service activities Food and beverage service activities Others

Percent distribution (%) 2.70

4.70 17.00

3 4.70 3.30

2.50 3.60 3.60 11.60 10 33.30

Source: Consolidated from GLOBAL VALUE CHAINS EXPANDING BOUNDARIES OF INDIAN MSMEs, Theme Paper 2018–2019, Published by Confederation of Indian Industry (CII)

The Government has put a lot of emphasis on MSMEs in the 2018–2019 budget with an objective to create jobs and self-employment. Government has allocated funds to the MSME sector as mentioned in Table 5 yet; MSME growth is non-uniform, owing to the substantial disparity in the development of services and manufacturing sectors.

2.2

Impact of Covid 1.0 and 2.0 on MSME

India’s economy was expected to contract by 4.5 percent in 2020, according to the International Monetary Fund (IMF), a “historic low” (IMF World Economic Update June, 2020). The lockdown had a significant influence on the production of industrial goods in the first quarter of 2020–2021. The Industrial Production Index (IIP) was 35.9 percent lower than the previous year. (Mahesh Vyas, June 21) and the second wave of Corona Virus worsened the situation. The first to hit the economy was the shock of decreased labour supply because the nationwide lockdown restricted the

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Table 5 Budget allocations of past three years for Ministry of micro, small and medium enterprises in India

Particulars Total-development of Khadi, village, and coir industries Total-technology upgradation and quality certification Total-prime minister employment generation Programme (PMEGP) and other credit support schemes Total-entrepreneurship and skill development Total-infrastructure development Programme

2017–2018 (Actual) Rs in Crores 1083.58

2018–2019 (Budget) Rs in Crores 1215.6

2018–2019 (Revised) Rs in Crores 1098.4

1238

1237.56

787.44

4112.68

2555.64

3154.45

3313.44

151.97

340.01

228.47

447.07

398.4

962

628.3

883.29

342.15

2019–2020 (Budget) Rs in Crores 1213.35

Source: Budget Documents, Ministry of Finance, Govt. of India

mobility of people and compelled them to work from home. Workers in various industries, including production and conventional services, were unable to work from home. Workers also suffered demand shocks due to loss of work. or Employers faced acute financial crunch resulting in their inability to pay employees their wages. According to a recent study, during lockdown 1.0 and 2.0, 16.18 million (25 percent) and 78.93 million (17 percent) of Indian workers were affected, respectively. (Kadam & Pandey, 2020). As per the report by Economic Outlook on 01 June, 2021, India’s labour participation rate was 40% in May 2021, the same as it was in April 2021. However, the job loss rate increased to 11.9 percent from 8% in April. This rise had been predicted in weekly forecasts. In the week ending May 23, the weekly unemployment level had risen to 14.7 percent. While the labour availability rate remains stable as the unemployment rate rises, jobs are lost, and the employment rate falls. In May 2021, the unemployment rate dropped to 35.3 percent from 36.8% in April 2021. This is a significant drop in a single month. Except for a sharp dip in April 2021 in the face of a nationwide lockdown, the unemployment rate has never plummeted by 1.5 percentage points or more in any month in the past (Mahesh Vyas, June 21). The fall in international business have had a detrimental impact on Indian MSMEs that are globally exposed. Exporting MSMEs are more affected than non-exporting MSMEs; they are more vulnerable to supply chain disruption and loss of global markets. According to the Directorate General of Commercial Information and Statistics, MSMEs account for 48.10 percent of all direct and indirect exports from India in FY 2018–2019, accounting for nearly half of all exports. The export market for MSMEs has valued at INR 6 lakh crore. MSMEs, which account for 35 percent of pearls, jewels, jewellery, and metals, 8% of electrical and electronic equipment, 11% of textile goods, and 40% of other exports, will be precarious due to this fall in the global demand. A current survey by the All-India Manufacturers’ Organization (AIMO) points out that around 35% of micro, small, and medium

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businesses, as well as 37% of self-employed workers, have started to close their doors. AIMO said such a “vast devastation of the company” was unparalleled. Around 46,000 respondents from numerous associations and industry groups responded to the survey from across the country. Response to the survey resulted in anticipation that this sector might need few months to recover from this shock (32 percent) (Saluja, 2020) but it did not, the second wave has further aggravated the problem. Short-term measures by the Government have managed to ease the pressure on entrepreneurs to a certain level. The second wave of Covid-19 has hampered the formerly fast-paced economic rebound. The economy has not suffered as much as it did in the past because the second shutdown was not as strict as the first. In addition, the number of cases has begun to decline, indicating that the peak has been reached. According to this scenario, the wave’s macroeconomic costs will be limited to Q1 2021–2022, with a possible spill over into July. All other results are expected to be negative in terms of lives, employment, and output. (Arun, 2021) It was crucial to help SMEs achieve the maximum result from the current efforts during the pandemic. It must nevertheless be tackled by establishing SMEs supportive interventions to ensure a lasting and robust recovery in the long run, with the long-term goal of promoting sustainable growth and fair business. (Thukral, 2021).

3 Methodology 3.1

Objectives

• To understand the consequences of Covid-19 pandemic on the MSME sector • To identify the strategy that MSMEs should adopt to get through this challenging phase and continue their operations gradually as and when the lockdown is lifted. • To present an analysis of the initiatives by Government of India to support MSMEs. • To present practical remedial actions for the growth of the Indian MSME sector. Qualitative research must be conducted rigorously and methodically to provide valuable and meaningful outputs as its authenticity becomes more widely acknowledged. Hence, we used this method for our study. We searched extensively two databases namely ProQuest, google scholar, and newspaper articles and Government reports, exhaustively; various keywords like COVID-19, MSME and India, Government packages, etc. was used to get the relevant information. The Prisma diagram is mentioned below:

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Identification

MSME and COVID 19 in India

Records identified from*: Databases (n = 2) ProQuest and Google Scholar Others (n=2)

Included

Screening

Government Reports Newspaper Article

Records removed before screening: Duplicate records removed (n = 10) Records removed for other reasons (n =15)

Records screened (n = 85)

Records excluded** (n = 20)

Reports sought for retrieval (n =65)

Reports not retrieved (n = 10)

Reports assessed for eligibility (n =55)

Reports excluded: Time Frame (4= Time frame) Lack of accessibility to full text (n =5 Poor data and language (n = 3)

Studies included in review (n =43)

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4 Policy Interventions and Implications of the Study 4.1

Government Interventions to Boost the Micro, Small, and Medium Enterprises (MSME) Sector during the Pandemic

The MSME sector went into a deep financial crisis in March 2020 due to the nationwide lockdown and the pandemic-related restrictions worldwide. Under the aegis of the Finance minister of India, MS. Nirmala Seetharaman, a 20-lakh crore financial package, which was 10% of the country’s GDP named Atmanirbhar Bharat Abhiyan (self-reliant India movement), was launched to aid the country out of the Covid-19 crisis and make India self-reliant. The five pillars of the scheme were economy, infrastructure, systems, demography, and demand. An economy that would make quantum leaps than incremental growth was the plan under this Scheme. A special economic package was launched to benefit the micro, small and medium enterprises (MSMEs), and labourers among others in the country. The sector-wise allocation under this economic stimulus package gave emphasis on banking (24.4%), state borrowing (20%), Business and MSME (17.2%), Agriculture (16.3), Social sector(9.7%),power(4.2%), Housing(3.3%),Taxation(2.3%), health(1.8%). The scheme was announced in five tranches. The first tranche had major allocations for the MSME sector. In the present pandemic situation, where many MSMEs’ survival is on the line, the scheme’s features are designed to provide the suffering sector a new lease of life. The first breakthrough for MSME through this stimulus package is the revision in the exposition of the micro, small and medium enterprises in terms of investment limit and annual turnover as discussed earlier; this would bring more enterprises under the umbrella of MSME, which would enable these firms to scale further, make use of the funds and other support systems available for MSMEs. The earlier definition was a serious limitation for many MSMEs in scaling the business since the increase in turnover and investment would mean that these enterprises would no longer belong to the MSME categorization defined by the ministry and eventually cannot reap the benefits of the scheme. This stalled the growth of many firms in this sector. Still, the revised composite criteria of investment and annual turnover would ensure the profitability and sustainability of these ventures under expert committees’ supervision and timely handholding. The bifurcation of investment and annual turnover criteria for manufacturing and service sectors has been removed under this scheme, creating equity between the sectors. The SMEs are going through a severe financial crunch. The immediate infusion of funds is essential to purchase raw materials, meet operational liabilities, and reassure clients about the dispatch of goods on time. An emergency credit line of Rupees 3 lakh crore ($41 billion) has been initiated. The collateral-free credit facilities extended to MSMEs will facilitate the automatic approval of loans without a

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guarantee fee. Enterprises with outstanding borrowings up to 25 crores and 100 crore turnovers can avail of this scheme; this credit line will be a game-changer for the sector as Government has proposed to the extent 100% credit guarantee to banks and NBFCs, which are opposed to sanctioning credit without collateral. The banks also can breathe easy with Government becoming guarantor as the risk of these borrowings becoming non-performing accounts need not be a subject of concern for banks. The emergency credit line would help around 60 lakh units and save millions of jobs. Under the scheme, Rs.2.46 lakh crore loans have been sanctioned, and 90 lakh borrowers benefitted (ET, March 18, 2021). Due to the pandemic, two lakh MSMEs were categorized as stressed or non-performing assets (NPAs) (FE, March 20, 2020). The Government launched a Subordinate debt scheme to empower these stressed or NPA MSMEs. Subordinated debt means a debt owed to an unsecured creditor and can only be paid after the payment of claims of secured creditors at the time of liquidation. According to FICCI-IBA Bankers’ report 2020, The High NPA risk sectors in the current pandemic situation are tourism and hospitality, MSME, aviation, and restaurant. Under this scheme, stressed and NPA MSME units were allowed to raise credit equivalent to 15 percent of their stake in the business or 75 lakhs, whichever is lower. This scheme is mobilized through Credit Guarantee Funds Trust for Micro and Small Enterprises (CGTMSE), with 4000 crore supports from the Government of India. CGTMSE will, in turn, extend partial credit support to banks whereby the banks can provide loans to the MSME promoter to raise equity. Over the last two decades, CGTMSE has played a vital role in delivering collateral and third-party guaranteefree loan facilities to MSMEs issued by qualifying Member Lending Institutions. The MSMEs registered in the state of Tamil Nadu have availed maximum guarantees amounting to Rs. 555.42 crore, followed by Punjab (Rs 339.98 crore), Maharashtra (385.06 crores), Madhya Pradesh (Rs 330.29 crore), and Karnataka (Rs 516.87 crore). This scheme would give a new lease of funds for the stressed MSMEs. To provide money to cash-strapped MSMEs, the Fund of Funds (FOF) is a crucial program under the Atmanirbhar Bharat Abhiyan that aims to give Rs.50,000 crore in equity support stressed MSMEs. A corpus of Rs.10,000 crore is setup for the same. This scheme is extended to enterprises in its initial phase, and the prospectus to raise funds from a venture capitalist and high-risk funding agencies is not in the anvil. The scheme is operationalized through a mother fund and several daughter funds to enable MSMEs to grow in capacity, scale-up, and gain competitiveness. The MSMEs with high growth potential and feasibility will be provided equity funding under FOF. The Government will promote these units to be listed on the stock exchange’s main board in the future. The revisions in the operational definition of MSME incorporated in this stimulus package will aid the coverage of these MSMEs that scale up to enjoy the benefits under MSME. Another key attempt is a limit of Rs. 200 crore on global tenders (invitations to bid by suppliers and manufacturers) in government procurement. This will allow Indian firms in the MSME sector to compete in the bidding process. Earlier Indian companies were not able to participate in the process due to unfair competition from foreign counterparts.

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Further, this policy is a significant boost to Make in India (scheme to boost indigenous production) initiatives. The other essential initiatives under the scheme leverage technology by using e-commerce platforms and fintech solutions to ease out marketing problems, payment, and credit-related problems faced by MSMEs. In addition, the World Bank has also provided targeted monetary support of $750 million to the Indian MSMEs; these institutional interventions had paved the way for a slow and gradual recovery of the sector by the end of 2020. But the second wave of the pandemic, which battered India came as a heavy blow to the industry, limping back.

4.2

Government Initiatives to Support MSMEs Battling through the Second Wave of the Pandemic

Indian SMEs have shown continued resilience in building back business. The year 2021 started with a positive note with fewer restrictions and restoration of supply chains and confirmed orders from partners and clients, and MSMEs were getting back to business. The second wave of the pandemic hindered the lofty expectations for the year 2021 to be a period of MSMEs regaining their footing. A CII (Confederation of Indian industries) member pointed out during one of the conversations on strengthening resilience that if a lockdown occurs, they will suffer significant losses because they have few export commitments to fulfil. To contain the spread of the virus, a lockdown was inevitable, and different State Governments in the country announced phased lockdown, curfews, sectoral lockdowns, and closure of industrial activities, coupled with the mass exodus of migrant workers, MSME activities came to a grinding halt. Rigid controls, strong social distancing norms, authorization to work at half-capacity, constrained supply chains, and rising input costs will push many MSMEs to the edge of closure. The MSME sector has severe issues in the second wave of the pandemic, including worker migration, working capital availability, and low demand. In addition to the ‘Atmanirbhar Package’ provisions last year, The Reserve Bank of India (RBI) has announced periodic loan moratoriums, eased working capital financing and postponed interest payment on working capital without asset classification downgrade to uplift the sector. The RBI extended the loan moratorium facility to individuals and businesses who had not taken advantage of it in 2020. The facility did not get the required leverage in 2020 as there were very few MSMEs that claimed the moratorium facility. Small enterprises can now get low-interest emergency credit lines from several public sector institutions. To assist businesses hit by the second wave of the Covid-19 epidemic, the Government has extended the Rs 3-trillion Emergency Credit Line Guarantee Scheme (ECLGS). (S. Bhattacharjee, 2021) The program has been called ECLGS 4.0. It now includes the civil aviation industry and a loan of up to 2 crores for on-site oxygen generating equipment to hospitals, medical colleges, and nursing homes, with an interest rate maximum of 7.5 percent.

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The Centre has also raised the outstanding loan ceiling to Rs 500 crore. The maximum loans borrowers can take under the program are limited to 40% of the outstanding debt of Rs 200 crore, whichever is less. This scheme would improve the liquidity position of the enterprises as the borrowers of ECLGS 1.0 announced in 2020 have also faced a severe financial crisis in the second wave; the additional borrowing facility will help them acquire additional funds and extended repayment time. This will reduce default in payments from MSMEs (Ohri & Lele, 2021). These policy revisions will improve the usability and impact of ECLGS to MSMEs, protecting livelihood and facilitating a smooth return on income to the business. These improvements will make it easier for institutions to obtain financing on reasonable conditions. Though the Government and other financial institutions have introduced various schemes to support MSMEs during the second wave of the pandemic, the adoption of digital technology should be the prime focus of enterprises in the MSME sector.

4.3

Digital Transformation of MSMEs as a Competitive Strategy

The pandemic has changed how the world does business, and MSMEs are not insulated from this inevitable change. Technology will serve as the most significant enabler of gaining competitiveness as MSMEs are trying to navigate the uncharted waters of the pandemic. IDC(International data corporation) defines the digital transformation of SMEs as digitization of business with customer-centric strategy using digital technologies like augmented reality, cloud computing, mobility, Internet of things (IoT), Artificial intelligence to engage customers more efficiently. According to Asia Pacific SMB Digital Maturity Study, 2020 report, with digitization, India’s small and medium enterprises (SME) are estimated to add $158 to $216 billion to the country’s GDP over the next four years. In India, 68 percent of SMEs want to change to create new products and services digitally, differentiate themselves from the competition, and grow. On the other hand, sixty percent of respondents believe that competition is changing and that firms must adapt. In comparison, 50 percent believe that client demand for change has motivated them to explore digital transformation. (Mohanta et al., 2017) Digital India campaign measures can mobilize resources to enable improved usage of digital technology in the sector. Digitization offers immense opportunities for MSMEs, but many of them cannot tap these avenues due to various constraints. In our discussion with a few SMEs in Bangalore, we identified that lack of digital competency and technologies, inadequate budget allocations, and management reluctance are the significant issues faced by SMEs in adopting digital technology. The owners of MSME units are reluctant to adopt digitization owing to poor digital literacy. While transferring their traditional business to the internet and establishing a digital identity, SMEs have both opportunities and risks. The digital divide in India is also a result of the

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country’s persistent socioeconomic disparities. Small firms in Tier-II and Tier-III cities are frequently under-educated and under-equipped with the technology capabilities needed to create a digital identity, such as web creation, online marketing, and network management. Further adopting digital technologies will involve huge investments in strong IT security to ward off phishing and cyber-attacks. As a result, many small business owners are apprehensive about establishing an online presence for their company. The short-term growth of an enterprise can be bought in through capital investment. Still, investment in technology is the foundation for the long-term growth and sustainability of any organization. In the current context, Government initiatives to support SMEs to invest in digital technologies are required. According to IDC Cisco 2020 report, 12% of SMEs in India have upgraded their IT infrastructure during the pandemic, while 16% of MSMEs in India have invested in the cloud and a 13% insecurity. As a result of the countrywide shutdown last year, the country has seen a new surge of digitization across sectors to ensure economic continuity. Videoconferencing, usage of accounting software, online banking and payments, E-invoicing, and digital sales channels are among the significant moves to digitization in the sector. According to a recent industry study, 53% of small firms and 47% of micro firms have adopted digital sales channels, up from 29% before the pandemic. MSME digitalization is a beneficial and long-term trend that might boost the country’s GDP by USD 125 billion by 2025 (Biswas, 2021).This progressive and innovative leap of MSMEs can be sustained only through Government interventions (Das et al., 2020). The Government of India has rolled out initiatives such as Digital MSME, Direct benefit transfer, Government E-marketplace, MSME global mart to support MSMEs in the digitization process. It has to be understood that the benefits of digitization may vary across sectors (Karr et al., 2020) yet, the adoption of digital technologies can enable MSMEs to tap new markets and revenue streams, reduce cost and manage transactions efficiently, reach out to customers and deliver goods and services more efficiently amidst Covid-19 restrictions and economic slowdown. The Covid-19 crisis has accelerated the pace of digital adoption by consumers, which requires MSMEs to migrate and adopt progressive e-space for their business; the pressure to keep them competitive is mounting like never before. Increased digital skills and access to digital technology will help reduce the burden of MSMEs. Government agencies can organize training sessions online and offline to enhance digital literacy and tech support in rural pockets of the country. To help them become future-ready, the training program should include website building as part of the curriculum and discussing the appropriate government program for their enterprise. Prioritization of digitization, infrastructure improvements, more significant funding choices, and comprehensive digital skilling should be the Government’s primary focus now and, in the future, to enable Indian small businesses to recover and compete in national and global markets.

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5 Conclusion Covid-19’s far-reaching ramifications are still being worked out. Given the virus’s widespread devastation, it is critical to surviving the pandemic’s upheaval and its consequences. MSMEs must grip the nettle of the Covid-19 problem and devise appropriate methods to deal with its consequences. MSMEs may survive, endure, thrive, or fail in this current situation depending on their managerial competencies, leadership characteristics, and financial fitness. It’s past time to change the corporate paradigm and thinking patterns by transforming panicked employees into realistic and productive workers. The catastrophic Covid-19 outbreak is impacting almost every nation on the planet. The world’s most strong economies have become powerless, and the situation has become uncontrollable. However, India’s resiliency in making swift and timely decisions is commendable. We cannot ignore the devastating effect of Covid-19. Still, when we compare India to some developed countries such as the United States or Italy, we can see that India is in a better position. This is simply due to the country’s accelerated lockdown, which focuses more on social distancing. Currently, India is reeling under the second wave. If India does not act quickly, the pandemic’s effect will become increasingly dangerous, and the visualization of its impact will be truly startling in the future. The pandemic affects every industry. In these situations, the Indian Economy is going towards a state of recession, and hence it needs systematic or forward based fiscal stimulus measures (Pravakar & Ashwani, 2020). It’s unclear how much time it will take to get back on track with progress. Unemployment is already a problem in India, and it will only get worse. Every life event teaches us something new, whether it is positive, negative, or both. The good news is that India can assess its ability as a result of this pandemic. India is overly reliant on other countries for goods imports; however, India has addressed this problem by relying on domestic sourcing rather than importing from other countries (Siddiqua & Swathi, 2020). This will help India’s BOP condition to some degree. The idea of working from home would become a new culture in India. As a consequence, in the near future, the use of digital practice will increase. More will be encouraged by Make in India and Digital India.

References Arun, M. G. (2021, June 14). The best shot at economic recovery: A second wave of Covid has set back India’s fragile economic recovery. The Board of India Today Economists weighs in on what it will take to get things back on track. India Today. http://www.proquest.com/docview/2 537481999/abstract/2FA6F7A87491460FPQ/2 Bhattacharjee, S. (2021, May 3). Covid second wave: MSMEs need help again, but not the way govt did last time. https://www.Business-standard.com/article/economy-policy/covid-secondwave-MSMEs-need-help-again-but-not-the-way-govt-did-last-time-121050300096_1.html

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Biswas, P. (2021, May). Small business to face difficult times ahead due to Covid-19 second wave. https://indianexpress.com/article/cities/pune/ram-iyer-interview-small-business-to-face-diffi cult-times-ahead-due-to-covid-19-second-wave-7311794/ Das, S., Kundu, A., & Bhattacharya, A. (2020). Technology adaptation and survival of SMEs: A longitudinal study of developing countries. Technology Innovation Management Review, 10(6), 64–72. https://doi.org/10.22215/timreview/1369 Dev, S. M., & Sengupta, R. (2020). Covid-19: Impact on the Indian economy, Indira Gandhi Institute of Development Research, Mumbai Working Papers, Indira Gandhi Institute of Development Research, Mumbai, India. https://EconPapers.repec.org/RePEc:ind:igiwpp:2020-013 FE online. (2020, July). India may add up to $216 billion to GDP in 4 years, thanks to small businesses; here’s how. https://www.financialexpress.com/industry/sme/msme-tech-digitaliza tion-of-small-businesses-may-add-up-to-216-billion-to-indias-gdp-in-4-years-says-cisco/20374 99/ FICCI-IBA Bankers’ Survey report. (2020). https://ficci.in/SEDocument/20516/FICCI-IBA_ Bankers_Survey_Report-July20.pdf Kadam, S. A., & Pandey, D. (2020). Post COVID-19 opportunities and challenges for micro small medium enterprises (MSMEs) development in India | Asian journal of advances in research. Asian Journal of Advances in Research, 5(3), 1–4. https://mbimph.com/index.php/AJOAIR/ article/view/1684 Karr, J., Loh, K., & Wirjo, A. (2020). Supporting MSMEs’ digitalization amid COVID-19, APEC policy support unit policy brief no. 35, APEC Secretariat, APEC Policy Support Unit. Mahesh Vyas. (June 21). 15 Million jobs lost in may 2021. Centre for Monitoring Indian Economy Pvt. Ltd. https://www.cmie.com/kommon/bin/sr.php?kall¼warticle&dt¼2021-06-01%2018: 06:45&msec¼766. Ministry of Micro, Small & Medium Enterprises (MSME). (2021). What’s MSME. Retrieved December 9, 2021, from https://msme.gov.in/know-about-msme Mohanta, G., et al. (2017). A study on growth and prospect of digital India campaign. Saudi Journal of Business and Management Studies, 2(7), 727–731. Mukherjee, S. (2020). Disparities, desperation, and divisiveness: Coping with Covid-19 in India. Psychological Trauma: Theory, Research, Practice, and Policy, 12(6), 582–584. https://doi. org/10.1037/tra0000682 Ohri, N., & Lele, A. (2021). Govt expands credit lifeline for MSMEs amid second wave of Covid-19. https://www.business-standard.com/article/economy-policy/govt-eases-emergencycredit-guarantee-scheme-to-help-businesses-in-pandemic-121053000305_1.html Pravakar, S., & Ashwani. (2020). COVID-19 and Indian economy: Impact on growth, manufacturing, trade, and MSME sector. Global Business Review, 21(5), 1159–1183. https://doi.org/10. 1177/0972150920945687 Rakshit, B., & Basistha, D. (2020). Can India stay immune enough to combat the COVID-19 pandemic? An economic query. Journal of Public Affairs, 20(4), e2157. https://doi.org/10.1002/ pa.2157 Rakshit, D. D., & Paul, A. (2020). Ripple effect of COVID-19 on MSME sector and road ahead MSMES. International Journal of Current Research, 12, 6. Rathore, U., & Khanna, S. (2020). From slowdown to lockdown: Effects of the COVID-19 crisis on small firms in India (SSRN scholarly paper ID 3615339). Social Science Research Network. https://doi.org/10.2139/ssrn.3615339 Reserve Bank of India. (2019), Report of the expert committee on micro, small and medium enterprises. https://www.rbidocs.rbi.org.in/rdocs/Publications/PDFs/0HANDBOOK201 7C9CF31D4B78241C9843272E441CD7010.PDF Saluja, N. (2020, May 26). Medium co turnover limit may be doubled for MSME benefits. Economic Times. Share of MSME exports—Ministry of MSME, Annual Report 2013–14.

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Shelly, R., Sharma, T., & Bawa, S. S. (2020). Role of micro, small and medium enterprises in Indian economy. International Journal of Economics and Financial Issues, 10(5), 84–91. https://www. researchgate.net/publication/344558363_ROLE_OF_MICRO_SMALL_AND_MEDIUM_ ENTERPRISES_IN_INDIAN_ECONOMY Siddiqua, A., & Swathi, J. (2020). A study on impact of COVID-19 on MSMES in India. International Review of Business and Economics, 4, 155–158. https://lavasalibrary.remotexs. in/scholarly-journals/27-study-on-impact-covid-19-msmes-india/docview/2475946781/se-2? accountid¼38885 Thukral, E. (2021). COVID-19: Small and medium enterprises challenges and responses with creativity, innovation, and entrepreneurship. Strategic Change, 30(2) http://www.proquest. com.library-christuniversity.remotexs.in/docview/2499781307/78A3A1A392454F22PQ/30? accountid¼38885. https://doi.org/10.1002/jsc.2399 https://economictimes.indiatimes.com/news/economy/indicators/over-rs-2-46-lakh-cr-sanctionedunder-emergency-credit-line-guarantee-scheme-govt/articleshow/81574319.cms?from¼mdr. https://economictimes.indiatimes.com/small-biz/sme-sector/rs-10000-crore-fund-of-funds-formsmes-to -be-operation al-soon-sbi-chairman/articlesh ow/7 7461208.cms?utm_ source¼contentofinterest&utm_medium¼text&utm_campaign¼cppst https://prsindia.org/files/policy/policy_committee_reports/Aatma%20Nirbhar%20Scheme.pdf https://www.business-standard.com/article/economy-policy/covid-second-wave-msmes-needhelp-again-but-not-the-way-govt-did-last-time-121050300096_1.html https://www.financialexpress.com/industry/sme/cafe-sme/msme-eodb-how-atma-nirbhar-bharatabhiyan-will-help-msmes-to-be-sustainable-and-profitable-in-the-long-term/1972764/ https://www.financialexpress.com/industry/sme/msme-fin-fund-of-funds-for-rs-50000-croreequity-infusion-in-msmes-to-be-operational-soon-sbis-rajnish-kumar/2050613/

Insolvency Law and Covid-19: The Finnish Example on Tackling the Pandemic Laura Ervo

1 Legislature’s Reaction The Covid-19 global pandemic of has negatively affected national economies and caused deep problems for enterprises and many unfortunate individual tragedies. The recession and economic problems happened quickly and totally without debtors’ risk-taking or any other culpability. To balance these consequences, which have been unforeseeable and not avoidable for both individuals and enterprises, Finnish lawmakers reacted by enacting temporary regulations in many fields of insolvency law. By doing so, the situation of debtors, as well as the circumstances for continuing business for companies that still are viable, has been mitigated. This kind of legislation is valid only temporarily but has been extended several times because of the ongoing crisis. There may still be a need to further extend the period of validity of these regulations because the affect the pandemic on the economy continues longer than the pandemic itself.1 There are temporary regulations both in Finnish bankruptcy and enforcement legislation. Also, the Collection Act and the Consumer Act have been changed temporarily based on the same need to protect debtors and prevent individual tragedies due to over-indebtedness. In general, the aim is rehabilitation.2 By doing so, all actors win: not only debtors but, in a long run, also creditors and society, as such. The consequences are financial but also moral and social because

1 2

https://oikeusministerio.fi/koronavirus (visited June 27 2021). Government bills 44, 46, 53, 164, 191 and 234/2020 and government bills 34, 59 and 157/2021.

L. Ervo (*) Örebro University, Örebro, Sweden e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 N. Mansour, L. M. Bujosa Vadell (eds.), Finance, Law, and the Crisis of COVID-19, Contributions to Management Science, https://doi.org/10.1007/978-3-030-89416-0_8

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over-indebtedness typically causes not only economic but many other psycho-social effects.3 To avoid these drawbacks, the legislature has reacted quickly. The normal preparations in the legislative process have not been followed. The typical consultations have mainly been jumped over. Despite this, society has been quite unanimous and there has not been much, if any, protests in this aim to protect debtors and balance the economy if the pandemic caused the recession. If there has been time and resources for consultations during the legislative process, comments have mainly been positive. Still, in some cases, this kind of feedback has been disunited. However, even in such cases, the legislature has weighted it more important to continue the legislative process and design restrictions despite of some protests. The protection of debtors and the prevention of over-indebtedness have simply ranked more important in this context than consensus.4 The mitigations made possible by the temporary laws have already been actively used, for instance, in the execution of enforcements. It is expected that those applications will keep increasing because the economic effects of the pandemic happen with an in-built delay; first, there is a pandemic and, even when it is over, its economic consequences are still there.5 The tools that are used to protect debtors during the pandemic and to help them recover are, for instance, grace-free months or relief arrangements.6

2 The 1990s Financial Crisis and Its Consequences This kind of relaxed climate in the form of mitigations is nothing totally new in Finnish insolvency law. Namely, human rights and a humane approach have been in focus in Finnish insolvency law from 1995 onwards. The reason is in the deep recession in the beginning of 1990s that caused a serious banking crisis,7 as well as many individual tragedies. To survive, not only financially but also mentally and morally, it was necessary to change the way of thinking and accept a more humane approach in credit-giving and debt-collection, including execution, amongst other measures. The insolvency law was renewed and the traditional starting points in debt collection became old-fashioned. Instead of terms interests and repayment, it became ‘sexy’ to talk about adjustment and rehabilitation. The attitude was no longer revenge, but atonement was the new spirit.

3

Niemi (2012, p. 286). Government bills 44, 46, 53, 164, 191 and 234/2020 and government bills 34, 59 and 157/2021. 5 https://oikeusministerio.fi/en/-/ulosottolain-valiaikaisiin-muutoksiin-esitetaan-jatkoa, visited 2021-06-28. 6 Act on temporary amending of the Enforcement Code 289/2020, Chapter 4, Sections 6, 51, 52, 64 and Chapter 7, Section 4. 7 Mayes et al. (2001). 4

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This change in values led to new loan arrangement legislation. The Act on the Adjustment of the Debts of a Private Individual (57/1993) and the Restructuring of Enterprises Act (47/1993) entered into force on 8 February 1993. Even in the liquidation processes, like enforcement, rehabilitative ideas have been top-of-mind during the recent reforms in Finland.8 One pertinent example of this kind of thinking is that enforcement is now time-limited; its grounds are no longer valid indefinitely. The usual time limit is 15–20 years if the debtor is a natural person.9 The idea is to prevent unfair long-lasting enforcement.10 The newest reform in that sense is that the re-employment of a debtor is supported. If a debtor who has been unemployed gets a job, the enforcement can be suspended (maximum is six months).11 The 1990s financial crisis, which was deep and comprehensive in Finland, affected the whole society. It is something people still remember and a common consensus to avoid a similar situation again. That is why it was quite easy to legislate new economic restrictions based on the Covid-19 pandemic in Finland. Both people, authorities, and actors in the banking and finance sector have a good institutional memory, and they do not want to live the 1990s crisis once again. To avoid deep downturns, the consensus, or at least compromise, in the form of economic legislative restrictions, are easily accepted and followed. The moral and mental climate in Finland, in even typical situations, allows for quick legislative solutions or solutions by case-law. It is possible that courts react by precedents and other case-law whenever the societal situation so demands and if there is a bit of space in the interpretation of the law. As seen now during the pandemic, even the Finnish legislature can react quickly and skip normal preparation and consultations. This is also something that historically exists in the Finnish legal culture and for which people, as well as legal actors, are used to. It is felt acceptable if the societal needs demand new legislation or new interpretations.12

8

Linna and Hupli have found three kinds of elements in modern enforcement. First, it is still a liquidation procedure. Second, the enforcement authorities must protect the debtor in a defensive way. Third, there is a rehabilitative function strongly involved in the current enforcement and other insolvency procedures. Bankruptcy is mainly a liquidation procedure when the reorganization proceedings or legal loan arrangements are based more on rehabilitation. Still, there is a need for rehabilitation in the enforcement; the legal possibilities to get involved in reorganization procedures or the loan arrangement are not sufficient. On the other hand, those procedures can also be seen as liquidation. Linna and Hupli (2001), pp. 596–625. 9 The Enforcement Code, Chapter 2, Section 24. 10 Linna et al. (2003), p. 18. 11 The Enforcement Code, Chapter 4, Section 51a, and the Government bill nr 150/2017. 12 Ervo (2015), pp. 145.

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3 Enforcement The Covid-19 pandemic caused temporary changes in the Enforcement Code. This temporary legislation came into force in April 2020, and the temporary changes have been extended already twice. Just now the period of the validity is until the end of 2021.13 The tools that are used to protect debtors during the pandemic and to help them recover financially are, for instance, grace-free months or relief arrangements. In addition, the postponement of the execution of enforcement is possible based on the temporary law. This covers both debts and evictions, in which the postponement of the removal date is made possible with reference to Covid-19-related problems. Normally, the urgency requirement stipulates that the foreclosure procedure be carried out without undue delay.14 One further tool is that the foreclosure procedure does not lead to a default in credit records as quickly as usually.15 In Finland, enforcement belongs to the state authorities, which is not that common a system in the other countries. Therefore, these kind of mitigations in enforcement due to the pandemic also are unique.16 It is the duty of the bailiff to inform a debtor of these mitigation possibilities ex officio. It is included in the principle of transparency.17 However, the bailiff retains case-by-case discretion to change or limit the granting of additional time and relief.18 The mitigations made possible by the temporary law have already been actively used in the execution of enforcements. Especially, the applications for grace-free months and relief applications have increased 16.8 per cent compared with the same period in 2019. It is expected that those applications will keep increasing because the economic effects of the pandemic happen with an in-built delay; first, there is a pandemic and even when it is over, its economic consequences are still there.19 The enforcement authorities’ workload has also been increasing due to the temporary legislation because of adjustment applications. Still, the changes are working well in practice and all actors who gave their statements when the validity period of the temporary legislation was extended, were positive.20 The Finnish enforcement law contains several provisions limiting and suspending enforcement even normally and there are good tools to react to make enforcement

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Act temporarily amending Enforcement Code (352/2021, 726/2020 and (289/2020). Act on temporarily amending Enforcement Code, Chapter 4, Sections 6, 51, 52, 64 and Chapter 7, Section 4. 15 Act on temporarily amending Enforcement Code, Chapter 3, Section 21. 16 Government bill 34/2021. 17 Act on temporarily amending Enforcement Code, Chapter 1, Section 20. 18 Act on temporarily amending Enforcement Code, Chapter 3, Section 21, Chapter 4, Sections 6, 51, 52 and 64 and Chapter 7, Section 4. 19 https://oikeusministerio.fi/en/-/ulosottolain-valiaikaisiin-muutoksiin-esitetaan-jatkoa, visited 2021-06-26 and Government bill 157/2020. 20 Government bill 34/2021. 14

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fair in all situations. Those mitigations have also been applied due to pandemic. The current provisions on debt relief in the case of foreclosure of recurring income or business income provide good tools for debt relief. However, the legislation was intended to apply in normal times and the thresholds for granting relief require a well-defined criterion or a specific reason. Therefore, it was better to regulate this specific situation due to the pandemic with the temporary legislation where the current circumstances have taken into consideration. The aim of the temporary regulation was to lower the threshold for the application of the mitigations and to make a uniform and fair enforcement procedure during the pandemic and its economic consequences.21 The aim was also to temporarily relax the urgency of the enforcement procedure. The temporary inability to meet one’s obligations should not immediately lead to a default.22 It was stressed that the enforcement procedure can safeguard the rights of both parties even in exceptional circumstances. Interventions to prevent fraudulent evasion of foreclosure remained unchanged, but there would be more flexibility to consider the situation of the debtor than under unchanged Enforcement Code.23 The final aim of this temporary legislation is in rehabilitation.24

4 Bankruptcy Also, the Bankruptcy Act has been temporarily amended due to the pandemic. The aim is to limit the bankruptcy of a debtor at the creditor’s request, as a coronavirus pandemic causes financial hardship to many companies that will not be permanent. Normally, the debtor is presumed to be insolvent if he/she has not paid the creditor’s clear and overdue claim within one week of the creditor’s demand for payment with the threat of bankruptcy. If this happens, the creditor can leave the petition in bankruptcy at court. However, according to the temporary legislation, the debtor would not be presumed insolvent on the ground that he/she had not paid the creditor’s clear and overdue claim within one week of the creditor’s demand for payment, but the time limit is 30 days.25 This temporary legislation is now valid until 30 September 2021. The temporary validity of these changes has been extended already three times.26 The changes came

21

Government bill 44/2020. Government bill 44/2020. 23 Government bill 44/2020. 24 Government bill 157/2021. 25 Act temporarily amending Chapter 2, Section 3 of the Bankruptcy Act (14/2021). 26 Act temporarily amending Chapter 2, Section 3 of the Bankruptcy Act (291/2020), (721/2020) and (14/2021). 22

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into force for the first time already on 1 May 2020.27 The aim of this legislation is to save those enterprises that have economic problems due to the pandemic, but which otherwise still are viable.28 The purpose of the temporary changes is to prevent a situation in which a company in difficulty due to a coronavirus situation would be declared bankrupt based on a presumption of insolvency due to the non-compliance with a bankruptcythreatened payment order. The aim of the proposal is also to prevent the use of bankruptcy-threatened payment orders in collection when the company’s payment difficulties are recent and thus probably due to the coronavirus situation.29 According to the statistics, the number of bankruptcy petitions increased before the coronavirus pandemic in January–February 2020 compared with the corresponding period last year but has been declining since March 2020. The decline has been strong in June–August 2020. In total, the number of bankruptcy petitions decreased by 8.6 per cent in January–August 2020 compared with the previous year.30 Under normal circumstances, most bankruptcy applications are initiated by public creditors. The debtor himself/herself has been the applicant in 31.2 per cent of the applications. Since the temporary changes in the Bankruptcy Act, the number of debtors’ own petitions have increased. It has varied between 36 and 52 per cent monthly.31 The reason for the decrease in the number of bankruptcies is estimated to be, firstly, payment arrangements granted by the Tax Administration and pension companies, landlords’ patience and understanding, instalment-free periods granted by financiers and state support measures. The second reason is this temporary amendment of the Bankruptcy Act by Act 291/2020. A bankruptcy threatening payment order is by far the most widely used reason for creditors to the bankruptcy petition. Therefore, the temporary legislation has significantly reduced the number of bankruptcy applications.32 Still, creditor-initiated bankruptcy petitions made during the period of validity of the temporary legislation mainly concern situations to which the temporary Act does not apply. In that case, the bankruptcy petition is either served before 1 May 2020 or is based on defaults by the debtor that are due before 1 March 2020.33 It is assumed that the same decreasing trend concerning creditor-biased petitions will continue. However, those creditor-initiated bankruptcy petitions that come to courts, despite of the temporary legislation, will cause more work for the courts and

27

Act temporarily amending Chapter 2, Section 3 of the Bankruptcy Act (291/2020). https://oikeusministerio.fi/-/konkurssilain-maksukyvyttomyysolettamaa-muutetaan-velalliseneduksi, visited 2021-06-26. 29 Government bill 46/2020. 30 Government bill 164/2020. 31 Government bill 164/2020. 32 Government bill 164/2020. 33 Government bill 164/2020. 28

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creditors because the creditor must prove the debtor’s insolvency by other means. Traditionally, creditors have not often filed for bankruptcy without the support of insolvency presumptions. This is because it is practically difficult for creditors to prove insolvency without a presumption. In particular, filing for bankruptcy of operating but still indebted companies are challenging. It is difficult for a creditor to be able to show that the debtor does not have such income and funds or access to credit that he/she would not be able to meet his/her obligations. If a creditor files for bankruptcy without the support of a presumption of insolvency, it means the high workload and the significant costs that remain to be paid by the creditor himself.34 It is also estimated that the number of bankruptcy applications will increase after the expiry of the temporary law. Extending the validity of the temporary law again and again will further increase the number of bankruptcy petitions after the law expires. Therefore, extra resources are needed especially in the courts and the bankruptcy ombudsman’s office as soon as the exceptional situation is over.35 The other drawbacks are that the temporary law will not only give companies more payment time, but also increase the number of unhealthy companies in the market. During the period of the temporary law, public creditors have no viable means of cutting-off corporate indebtedness. In this case, there is a risk that more and more companies will become more indebted as they become insolvent. It is essential that each company critically considers whether the company should file for insolvency proceedings. It is possible that the need to clarify the responsibilities of corporate management will increase.36 Extending the validity of the law also means that the opportunities to investigate abuses in business operations are reduced. In this case, the need for public investigations increases and there is a risk that there is not enough resources and changes to investigate crimes related to companies, but the number of dark crime will increase.37 The bill will make recovery in bankruptcy more difficult. The deadline for the most used recovery criteria in bankruptcy situations is only three months back from the filing the bankruptcy petition. On the other hand, the time limits for payment to a debtor’s relative, as well as for some other recovery criteria, are considerably longer, so that payment may be recoverable under them.38 Temporary legislation can also lead to situations where some employees’ wage claims are excluded from wage security.39 Despite of these drawbacks, the Finnish legislature assumed that it is still more important to protect companies if the pandemic negatively impacts their economy. The legislature has also paid attention to the so-called domino effect. The

34

Government bill 164/2020. Government bill 164/2020. 36 Government bill 164/2020. 37 Government bill 164/2020. 38 Government bill 164/2020. 39 Government bill 164/2020. 35

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bankruptcies of bigger firms will lead to bankruptcies of the smaller companies too because their businesses are dependent on those big enterprises. That is why this effect of pandemic will continue a rather long time even after the pandemic itself will be over.40

5 The Maximum Interest Rate Already in the middle of April 2020, there were 138,000 new laid off and 19,000 new unemployed, all due to the pandemic. All totalled 4700 companies had started employee cooperation negotiations, which covered 417,000 people.41 The situation is, of course, also reflected in the financial situation of many households. As a result of the surprising downtrend, it is likely that many consumers will increasingly have to take new credit. It is also foreseeable that the exceptional situation will be reflected in growing debt problems in the long run. A particular problem is that Finnish households are already indebted: according to statistics, the debt/equity ratio of households was about 129 per cent at the end of 2019, and the number of people with debt problems has also been growing steadily.42 The number of people with bad credit history is high and has been steadily slightly rising. At the end of 2019, 386,700 people had bad credit history in the register of Suomen Asiakastieto Oy. The increase compared to the previous year was almost 5000 people. During the year, consumers received a total of 1.8 million new disruptions in payments, which was 20 per cent more than in 2018.43 In this risky situation, the legislature reacted quickly to protect consumers. The maximum interest rate was regulated, and direct marketing of consumer credit was banned.44 The interest rate was temporarily tightened so that the interest rate charged may not exceed 10 per cent. This amount is close to the current level of the penalty interest, which is 7 per cent. This limit in interest rates is estimated to have a significant price-reducing effect on monetary credit, as well as effects on preventing the deepening of debt problems. On the other hand, the level can also be considered reasonable for creditors, considering especially the exceptional nature of the situation and temporary nature of the regulation.45 The temporary interest rate cap applies to credits under Chapter 7 of the Consumer Protection Act, except for commodity-linked credit. The regulation would therefore cover consumer credit that is a pure-cash loan. Instead, interest rate caps

40

Government bill 164/2020. Government bill 53/2020. 42 Government bill 53/2020. 43 Government bill 53/2020. 44 Act temporarily amending Chapter 7 of the Consumer Protection Act (512/2020). 45 Government bill 53/2020. 41

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would exclude, for example, car loans and special credit cards. The exclusion of commodity-linked credit is made, firstly, because the main debt problems have been specifically related to pure monetary credit and, secondly, because of the temporary nature of this regulation. The risk of regulatory evasion is not as high as for permanent regulation.46 The exclusion of commodity-linked credit in this economic context is important because e-commerce with the possibility to buy on an instalment plan can be an important instrument for households in this difficult economic situation to purchase necessary items and keep the economy balanced. By excluding commodity-linked credit from regulation, the adverse effects of the change on specialty trade can also be reduced. Those fields of trade are also in financial distress due to the pandemic. By doing so, this regulation can benefit both creditors and support trade at the same time.47 The regulation would also have some effects on credit contracts already concluded. Namely, the temporary interest rate cap applies not only to new contracts but also to ongoing credit concerning new withdrawals based on earlier credit contracts. This is fair because loans granted before September 2019, which were excluded from the price regulation that came into force at that time, can be very expensive.48 This temporary regulation has been already extended once. The second period of the validity of this maximum interest rate of 10 per cent is from 1 January 2021 until 30 September 2021. The second act (1194/2020) is identical to the first one except for the extension according to which credit charges should also not be increased during the term of the regulation either. In addition, there is an obligation to warn consumers in advertising,49 which refers to a temporary price regulation.50 Due to the short duration of the temporary legislation, it was possible to get a systematic and exploratory assessment of its effects, but the second draft was based on the view that both the main objectives of the regulation have been achieved. At the same time, at least some of the criticised impediments to functioning markets have proved to be true. In this situation, where the pandemic continues, the achievement of the key regulatory objectives is a more important factor than its identifiable negative effects.51

46

Government bill 53/2020. Government bill 53/2020. 48 Government bill 53/2020. 49 The named Act, Chapter 7 Section 8a. 50 Government bill 234/2020. 51 Government bill 234/2020. 47

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6 Marketing of Consumer Credit Since 1 July 2020, there is also a temporary ban on the direct marketing of consumer credit regulated in Chapter 7 of the Consumer Protection Act (512/2020). The ban also covers the direct marketing of credit intermediaries’ own services. In this respect, the aim is to prevent intense marketing that is targeted directly at consumers in sudden financial difficulties.52 The temporary legislation was originally planned to be valid 7 January 2020 through 31 December 2020 (the Act 512/2020). However, the pandemic situation did not get better, as we know, and the temporary legislation was extended to be valid until 30 September 2021 (the Act 1194/2020). Direct credit marketing is prohibited not only for new but also for existing or former customers. It would also be irrelevant to the prohibition whether the loans are marketed by, for example, a creditor, credit intermediary, or another body. The concept of marketing is broad and refers to commercial communications, such as advertising, otherwise provided information during trade, and various forms of promotion, such as discounts, fringe benefits and marketing lotteries. However, the ban would only cover the direct marketing of credit. The marketing of credit to the consumer in connection with the purchase of something such as a car or furniture is permissible.53 This exception was extended to cover also marketing of those items. In the original temporary legislation, the exception covered only the situations of the purchase but not marketing of those objects. In the latter temporary legislation, it is allowed also to market credit in the connection of marketing those objects.54 For consumers, the ban on direct marketing is expected to reduce reckless borrowing. Based on the responses to the Finnish Consumer and Competition Authority’s online survey in February 2019 on instant credit advertising, intrusive marketing of consumer credit is also often perceived as disruptive and even morally questionable due to the social problems caused by credit. The aim of this change is to reduce these effects temporarily when pandemic causes economic problems to consumers. From the point of view of creditors and credit intermediaries, the ban on the direct marketing of consumer credit and credit intermediaries’ own services naturally reduce the opportunities for marketing credit products and related services to consumers. However, other ways of marketing credit and related services are still possible.55 As there was a heightened need for regulation to take effect expeditiously, the regulatory solutions needed to be simple. Therefore, the ban covers only direct marketing, which, because of its nature, can be expected to have a particularly negative effect on consumers. It was not deemed justified to ban the general 52

Government bill 53/2020. Government bill 53/2020. 54 Act temporarily amending Chapter 7 of the Consumer Protection Act (30.12.2020/1194), Section 13 b. 55 Government bill 53/2020. 53

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marketing of credit, as credit, when used judiciously, can be a way for some consumers to overcome temporary payment difficulties, and it is important to inform consumers about the possibility of instalments, especially in this exceptional situation of the Covid-19 pandemic.56 The ban on direct marketing of consumer credit applies not only to electronic direct marketing but also to other direct marketing. Direct marketing means here marketing targeted at a specific consumer or household. Targeting can utilise, for example, consumer contact information such as a mailing address, phone number, email address, cell phone number, or personal social media account. The prohibition would therefore apply to the marketing of credit, for example, by text message, e-mail, or by telephone sales. It would also cover advertisements distributed to households, both addressed and unaddressed. Traditional newspaper, radio, streetor television marketing, on the other hand, should not be considered as direct marketing within the meaning of the ban, and such general marketing would therefore be allowed. It would also be permissible, for example, to provide information on the credit products available when the consumer contacts the creditor or credit intermediary himself/herself.57 Based on a questionnaire sent to key authorities and entities, views were divided on the functioning of the temporary direct marketing ban. Some commentators welcomed the ban and considered it necessary to continue. Some others pointed out that the interpretation of the concept ‘direct marketing’ has made it more difficult to communicate with already existing customers in credit granting. According to some commentators, the ban on direct marketing has led to an increase in general marketing as creditors have sought to adapt to the temporary tightening of marketing regulations. From a control point of view, the control of the legality of general marketing is easier for control authorities than the control of direct marketing, as the control of direct marketing is largely based on information received from consumers. There have been some such notifications from consumers during the period of the provisional regulation based on the information from different controlling authorities in the field.58 However, in general, the regulation seems to be followed very well.

7 Collection Act After the first wave of the Covid-19 pandemic, the turnover of several companies decreased in the spring of 2020, which caused companies to have payment difficulties. In the end of May 2020, 41 per cent of companies reported a decrease in sales of 30 per cent or more. The coronavirus epidemic caused problems for about 73 per

56

Government bill 53/2020. Government bill 53/2020. 58 Government bill 234/2020. 57

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cent of companies.59 Therefore, the legislature continued designing new temporary changes in this unsure situation despite of the fact that the pandemic was, at that time, under control. Namely, in September 2020, nearly 20 per cent of companies reported difficulties in processing their payments in the last three months, which is 6 per cent more than in the spring.60 The next step in the temporary legislation was the adjustments in the Collection Act. Before the temporary change, the law contained detailed regulations on collection costs only for consumer claims. In the case of non-consumer claims, provisions were now added to the law. They concern the limits of collection costs. It is also regulated what types of recovery actions and how many recovery actions may be charged. Additionally, there are limits to the total liability, as well as the time limits for sending reminders or claims for which the debtor is required to be reimbursed.61 The proposal also proposes restrictions on the use of draft. Under current law, drafts may not be used to collect a consumer receivable. The temporary change covers also non-consumer claims, where the use of a draft as a tool of recovery should not be allowed if the debtor is a private person, sole trader, partnership firm, or a limited partnership company. It would be possible to send a draft, but not to publish it in the credit register, if the debtor company submits a report stating that its turnover or equivalent income for the most recently ended financial year is less than EUR 100,000 or is in its first financial year.62 As a result of the liquidity difficulties of companies due to the coronavirus, it is likely that several companies will be delayed in paying their invoices and debts. To alleviate the situation of companies and to avoid worsening the payment difficulties of otherwise viable companies, the purpose of the temporary legislation was to ensure that the collection costs of non-consumer receivables were lower. The aim also was to limit the use of a draft in the collection of corporate receivables. The aim in this respect is to protect the most financially vulnerable companies. These may include companies for whose obligations natural persons are personally liable by law, as well as companies with a small turnover.63 The changes came into force on 1 January 2021. The first period of validity was until 30 June 2021. However, even there were needs to extend the validity without a pause from 1 July onward. Namely, according to an entrepreneurial poll conducted by the Finnish Entrepreneurs’ Association, in November 2020, the coronavirus has caused problems in about 65 per cent of companies. Companies’ confidence in surviving was about the same as at the turn of August through July 2020. At the time, nearly 90 per cent of companies believed either with certainty or moderate certainty that they would survive the crisis. The same result emerged from another empirical study held in March 2021. According to it, 55 per cent of companies

59

Government bill 191/2020. Government bill 191/2020. 61 Government bill 191/2020. 62 Government bill 191/2020. 63 Government bill 191/2020. 60

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reported a decrease in sales caused by the coronavirus and 15 per cent report payment difficulties. On the other hand, according to 13 per cent of the respondents, the coronavirus has not affected the company’s operations in any way.64 This extension corresponds mainly in substance to an existing interim law. Restrictions on the use of a draft would be in force for a shorter period than the provisions on recovery costs. Following the expiry of the restrictions on the use of a draft, there is one novelty that concerns the protest period for the draft. It is temporarily extended from 10 days to 21 days.65 The Act amending the Act on the Recovery of Receivables entered into force on 1 July 2021 and will remain in force until 30 April 2022, except for the provisions on the restriction of the use of a draft, which will remain in force until 30 September 2021. The Act Amending Section 7 of the Collection Act and the Act Amending Section 24 of the Credit Information Act is intended to enter into force on 1 October 2021 and remain in force until 30 April 2022.66

8 Summary and Conclusions As explained above, Finnish insolvency law is quite humane and fair even under normal circumstances. The aim is rehabilitation, which has been found to be also fiscally sound in the long run. In this kind of climate, it has been quite easy for Finnish lawmakers to react quickly based on the pandemic. The Finnish legal culture is also amenable to rapid reforms whenever societal changes so demand. In such situations, it is typical to react by new legislation or case-law without wide and long-lasting societal discussion. Dissenting opinions are, in the contrary, easily interpreted as ‘boat rocking’.67 The third reason why the Finnish legislature has been able to quite easy regulate economic mitigations due to the pandemic is a result of the deep downturn in the beginning of 1990s. This crisis affected and still affects Finnish societal ways of thinking.68 In the long run, society will arguably benefit more when debtors can continue their lives or businesses as usual.69 Still, ineffective enforcement is a different matter compared to the regulation of the enforcement’s intensity. There must be a balance between intensive enforcement and judicial relief.70 Honest debtors who have experienced hardship in their lives are worthy of rehabilitative measures, especially when societal needs are taken into consideration.

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Government bill 59/2021. Government bill 59/2021. 66 Government bill 59/202. 67 Ervo (2015) p. 145. 68 See more for instance in Koskenkylä and Pensala (1992) and Vihriälä (1993). 69 Linna and Hupli (2001) p. 600. 70 Linna (2009), pp. 20–21. 65

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Society, as well as debtors, benefit more in the long run if enforcement is more rehabilitative than focused upon liquidation. Of course, in such a system, creditors need to pay for the common good and, by doing so, participate in establishing social benefits stemming from their private funds, which can sound unfair, depending on the existing values. And what is fair to one actor is not always fair to the opposite party. However, rehabilitative insolvency law can benefit creditors, too, in cases where he/she would not otherwise obtain any recompense, or only little recompense, from an over-indebted debtor. Therefore, rehabilitative insolvency law with non-fraudulent debtors can be a win-win situation for all actors, debtors and creditors alike, and especially for society when viewed as a whole. Whenever there is humanity in liquidation procedures, no one can lose. Economic value should, as it were, be placed on par with moral values, as Michael Bayles has shown by his calculations already in 1990.71 This is the way Finnish lawmakers have chosen to tackle the financial implications of the Covid-19 pandemic.

References Bayles, M. D. (1990). Procedural justice: Allocating to individuals. Dordrecht: Springer. Ervo, L. (2015). Comparative analysis between East-Scandinavian countries. In Scandinavian Studies in Law (pp. 135–152). Stockholm Institute for Scandinavian Law. Government bill 46/2020a, Hallituksen esitys eduskunnalle laiksi konkurssilain 2 luvun 3 §:n väliaikaisesta muuttamisesta. Government bill 53/2020b, Hallituksen esitys eduskunnalle laiksi kuluttajansuojalain 7 luvun väliaikaisesta muuttamisesta, HE 53/2020. Government bill 164/2020c, Hallituksen esitys eduskunnalle laiksi konkurssilain 2 luvun 3 §:n väliaikaisesta muuttamisesta, HE 164/2020. Government bill 191/2020d, Hallituksen esitys eduskunnalle laiksi saatavien perinnästä annetun lain väliaikaisesta muuttamisesta. Government bill 234/2020e, Hallituksen esitys eduskunnalle laiksi kuluttajansuojalain 7 luvun väliaikaisesta muuttamisesta, HE 234/2020. Government bill 44/2020f, Hallituksen esitys eduskunnalle laiksi ulosottokaaren väliaikaisesta muuttamisesta. Government bill 34/2021a, Hallituksen esitys eduskunnalle laiksi ulosottokaaren väliaikaisesta muuttamisesta. Government bill 59/2021b, Hallituksen esitys eduskunnalle laeiksi saatavien perinnästä annetun lain väliaikaisesta muuttamisesta, saatavien perinnästä annetun lain 7 §:n väliaikaisesta muuttamisesta ja luottotieto-lain 24 §:n väliaikaisesta muuttamisesta. Government bill 157/2021c, Hallituksen esitys eduskunnalle laiksi ulosottokaaren väliaikaisesta muuttamisesta. Koskenkylä, H., & Pensala, J. (1992). Pohjoismaiden, pankkikriisi ja viranomaisten tukitoimenpiteet. Kansantaloudellinen aikakauskirja, 88(4), 431. Linna, T. (2009). Ulosotto-oikeuden yleiset opit—missä ja mitä? Lakimies, 3–33. Linna, T., & Hupli, T. (2001). Ulosotto ja konkurssi lainkäyttömenettelyinä. Lakimies, 596–625.

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Bayles (1990).

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Linna, T., Leppänen, T., & Ulosottomenettely, T. (2003). Mayes, D.G., Halme, L., Liuksila, A. (2001). The financial crisis of the early 1990s and its lessons. In: Improving banking supervision. Palgrave Macmillan. Retrieved June 28, 2021, from https://doi.org/10.1057/9780230288195_2 Niemi, J. (2012). Liian pieni pelastettavaksi? In: Varallisuus, vakuudet ja velkojat. Festschrift Jarmo Tuomisto 1952—9/6—2012, ed. Tero Iire. The University of Turku. Vihriälä, V. (1993). Suomen pankkikriisi—mitä opimme? Kansantaloudellinen aikakauskirja, 89(4), 581.

Webpages Retrieved June 26, 2021, from https://oikeusministerio.fi/-/konkurssilainmaksukyvyttomyysolettamaa-muutetaan-velallisen-eduksi Retrieved June 28, 2021, from https://oikeusministerio.fi/en/-/ulosottolain-valiaikaisiinmuutoksiin-esitetaan-jatkoa Retrieved June 27, 2021, from https://oikeusministerio.fi/koronavirus

The Effect of Covid 19 Pandemic on the Financial Market’s Performance: Evidence from Top ASEAN Stock Markets Van Chien Nguyen and Thu Thuy Nguyen

1 Introduction The Covid 19 pandemic is an unceasing worldwide pandemic of coronavirus disease 2019, and has been severely affected the global economy since 2020. The Covid 19 pandemic has caused an economic shock worse than the 2008/2009 global crisis. According to Miller (2020), the Covid 19 pandemic has much affected economies by conducting quarantines and lockdowns that are needed to respond the spread of Covid 19 to the economy with unprecedented force and speed. In the case of China, because of serious coronavirus outbreak the first quarter of 2020, GDP contracted by 6.8%, therefore, China’s economy has maintained a lowest annual growth rate of 2.3% in 2020 since economic reforms in 1976 (He 2021). According to the Bureau of Economic Analysis (2021), American GDP growth rate decreased 6.5% in 2020 compared with an increase growth rate of 2.2% in 2019. The reason of decrease in GDP growth in the pandemic of 2020 reflected decline of exports, investment, and tourism, hospitalities while the government spending has greatly increased by medical costs. As suggested in Cahill et al. (2021), not only the economy, but also the healthcare sector is significantly impacted by the Covid 19 pandemic. According to Sharma and Mahendru (2021), India is a populous country and among the most speedily growing economies in the worldwide, the pandemic has seriously affected lives and livelihoods of people, particularly in the long-day lockdowns. In the case of India, Sharma

V. C. Nguyen (*) Thu Dau Mot University, Thu Dau Mot, Vietnam e-mail: [email protected] T. T. Nguyen Department of Mathematics, Thuongmai University, Hanoi, Vietnam e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 N. Mansour, L. M. Bujosa Vadell (eds.), Finance, Law, and the Crisis of COVID-19, Contributions to Management Science, https://doi.org/10.1007/978-3-030-89416-0_9

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and Mahendru (2021) should balance between saving lives and encouraging the economy. In fact, Indian economy decreased around 7.3% in 2020 while the pandemic had peaked in India in the beginning of 2021, the country could come under control. More specifically, a number of warnings pertaining to an increase in cases, shortages in life-saving equipment and huge damages on the healthcare systems. In the era of the diverse situation of the economy, Sharma and Mahendru (2021) reaffirm that the Indian government has instantly declared a relief package may be performed. In addition, Kumar (2020) discussed that the governance has to warrant the local citizens are able to survive in the lockdown duration. In the financial markets, it plays an important role on economic growth. The financial market has a crucial role in the economic system (Nguyen et al. 2020). There are three principal financial markets such as money market, capital and forex market. In the capital market, securities as shares, bonds are issued to transfer medium or long-run finance for business and government. The capital market can connect savers and borrowers. A level of development of financial market is consistent with a lower transaction cost. In addition, the financial market can create liquidity by growing business and raising financial resources to the ventures. In the Covid 19 pandemic, a test on the influence of Covid 19 on the financial market is considered in the world. According to Rao et al. (2021), the lockdown period can affect both economy and financial performance in India, and the presence of positive returns during pandemic can be found. However, the effect is dependent on the specific industries. An investigation on the bonds market, Yarovaya et al. (2021) confirmed that bonds become safe properties in the period of pandemic whilst the relationship between conventional and Islamic related stock market become more powerful in the pandemic outburst. Vietnam and Thailand are main members of ASEAN countries in the Southeast Asia (Tran et al. 2020). The GDP of Vietnam and Thailand, is USD 350 bn, and USD 528 bn, respectively. In the pandemic, Vietnam has achieved a great GDP growth rate. Specifically, GDP in the fourth quarter increased by 4.48% year-on-year, followed by the third quarter growth at 2.69%, second and first quarter growth at 0.39%, and 3.68%. Similarly, Thailand’s growth rate shrank by 4.2% year-on-year in the fourth quarter of 2020, following a 6.4% contraction in the third quarter and 12.1%, 2.2% contraction in the second and first quarter of 2020. Therefore, the picture of Vietnam and Thailand in the pandemic is very different. In addition, the stock market of Vietnam and Thailand reached 960.99, 1103.87 and 1579.84, 1449.45 points in the end of 2019, and 2002, indicating that on a seasonallyadjusted year-on-year basic, the stock market in Vietnam greatly increased while Thai stock market dropped. Accordingly, the purpose of this study is to examine the effect of the Covid 19 pandemic on the financial market performance of ASEAN economies, particularly two major economies in the region such as Vietnam, and Thailand. By using the advanced econometrics based on copula approach, the study divides into two periods in order to analyze how the pandemic impacts on financial market, for example, pre-pandemic, and during pandemic. The study hopes to fill the existing gap and enrich the growing economic literature.

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2 Literature Review This section briefly reviews previous studies related to the relationship between a shock and the performance in the financial market. Previous studies indicate that the financial market is sensitive in the light of shock or rumor. The financial market is common to each economy, it keeps an essential role to the economic growth in each economy. In fact, the financial market can provide for efficient financial resources within or across the country as well as provide businesses and government access to capital. Yarovaya et al. (2021) presented in the bonds market, and particularly the contagion between Islamic stock market and conventional ones. The results of this paper demonstrated that the Islamic bonds seem to be a safe haven property in the pandemic. There is presence of contagion between Islamic stock market and conventional ones during outbreak of Covid 19. In addition, the Covid 19 pandemic feel a stronger predictor of the conventional- Islamic market spillovers. Similarly, using 3200 observations during lockdown in India, Rao et al. (2021) further indicated that the pandemic has significantly impacted the financial market. In the period of pandemic, a positive effect on market return can be existed but the effect is reliant on industries. Lo et al. (2021), using a panel data on stock markets in Africa, the Covid 19 pandemic has slightly impacted on Africa in the form of number of cases and deaths in the early of the disease, however, the impact of pandemic has a positive and significant on market volatility of about 7 percent. Lo et al. (2021) also indicated that an increase in quantity of confirmed cases can impact on the stability in the financial markets. Further, the fatality rate has not influenced on market dynamics. In the light of political responses, it can decrease the risk of the financial markets while the fear of the global financial market can seriously harm African financial markets. It has a great contribution on the government in each country in order to respond immediately in terms of risk management. The Covid 19 pandemic was firstly found in Wuhan, China. The pandemic has resulted in significant global social, economic disruption as the largest recession in the global. In China, the pandemic has negatively impacted on its growth rate. GDP contracted by 6.8% in the first quarter of serious coronavirus outbreak, and GDP in 2020 has achieved a lowest annual growth rate of 2.3% since 1976. In this situation, the financial markets in the globe have declined and much volatility in the transmission coronavirus from China to Europe and US. Ali et al. (2020) suggested that the earlier stage of Covid 19 pandemic, Chinese financial market has stabilized while the global markets has been freefall, especially in the later stage of Covid 19 spread. The financial market has identified gold as a safe haven asset in the period of shocks, or pandemic, especially in the before and during the Covid 19 pandemic (Drake 2021). Cepoi (2020) discussed the reaction of stock market in the light of coronavirus wave. In this case, Cepoi (2020) confirmed that the return of gold has a positive consistent with the performance of stock markets. However, this effect has widely varied, and depended on specific circumstances, therefore, gold is not

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actually a safe haven asset in the financial market. Further, superior quantiles of returns negatively impact on the past performances whilst inferior and middle quantiles are not impacted by the phenomena. Additionally, by suggesting that a negative association between gold returns and the stock markets is not appeared in the times of the financial crisis and during Covid 19. Theoretically, gold as a financial asset, and gold is an inflation hedge, Drake (2021) confirmed that gold as a safe haven asset in the periods of stock market volatility and negative interest rates. Therefore, the importance of gold should be considered as a good hedge in the crisis. Empirical evidence also indicates that shockwave of Covid 19 pandemic can create influence on currency market in the financial market. Gunay (2021) examined that the shockwave effect of Covid 19 pandemic in the total volatility spread is eight times higher than that of the global financial crisis. Further, Brazilian and Turkish currencies are greatest increase in received volatility in the times of the Covid 19 pandemic and global financial crisis.

3 Research Data and Methodology 3.1

Research Data

This paper investigates the effect of the Covid 19 pandemic on the financial market performance of ASEAN economies, as Vietnam and Thailand by exploring a data set of daily time-series covering from Jan, 23th 2020 to Apr, 30th 2021. Data related to total cases of covid pandemic was collected from https://ourworldindata.org/covidcases. Additionally, two indices of South-East Asia including Vietnam’s and Thailand’s stock markets were extracted from the Stock Exchange of Ho Chi Minh City (VN-Index), and the Stock Exchange of Thailand (SET- Index).

3.2

Methodology

In the theory of dependence structure, the restrictions of traditional measurement of dependence structure were recently interpreted in research of Boubaker and Salma (2011). Copula is evidently proved to be a simultaneous distribution or multivariate distribution function from the marginal distribution functions of random variables. It indicates that copula was an appropriate approach for analyzing the dependence structure between random variables. Furthermore, Boubaker and Salma (2011) deployed five copula functions to deploy a study on a data set collected from emerging and developed markets. The findings indicate that there exists a contagion due to the crisis across markets. In this study, one copula function named Student’s is chosen since it has been used in many empirical studies on the stock market (Guizhou et al. 2018; Laura and Jorcano 2020) and the dependence measurement

The Effect of Covid 19 Pandemic on the Financial Market’s Performance:. . .

143

parameters are used in the analysis. Copula of two dimension is get involved in this situation.

3.2.1

The Definition of 2-Dimensional Copula

Theoretically, copula function is defined to be the joint distribution function whose margins are 1-dimensional variable. The definition of 2-dimensional copula is shown by Cherubini et al. (2004), Nelsen (2006), Adam et al. (2013). Definition 1 A 2-dimensional copula is defined as a function C with domain is [0; 1]
[0; 1], it satisfies the four properties: C ðxÞ ¼ 0, 8x 2 ½0; 1
½0; 1 if at least one coordinate of x is 0 C ð1; xÞ ¼ Cðx, 1Þ ¼ x, 8x 2 ½0; 1 8ðy1 ; y2 Þ, ðz1 ; z2 Þ 2 ½0; 12 with y1  z1 , y2  z2 , so we have : C ðy2 , z2 Þ  C ðy1 , z2 Þ  C ðy2 , z1 Þ þ C ðy1 , z1 Þ  0 The copula function as a composite function from the boundary distribution functions of a random vector to the simultaneous distribution of those boundary distribution functions. This feature makes it possible to study the dependency structure between random variables even if they do not have the same distribution. Then, the corresponding copula is a distribution function simultaneously with the main variables being the boundary distribution functions of the original variables. Sklar’s theorem is useful in studying the dependent structure of random variables which are non-independent and distributed differently. This theorem can be found on page 200 in McNeil et al. (2005). Theorem 1 Let F be a joint distribution function whose margins are F1(x1), F2(x2). Then there is a copula function C : [0, 1]
[0, 1] ! [0, 1] such that for all x1, x2 in R ¼ ½1, þ1, we have: F ðx1 , x2 Þ ¼ CðF 1 ðx1 Þ, F 2 ðx2 ÞÞ:

ð1Þ

If the margins are continuous then C is unique; otherwise C is uniquely determined on RanF1
RanF2, where RanFi ¼ Fi(R) denotes the range of Fi. Conversely, if C is a copula and F1, F2 are univariate distribution functions, the function F defined as in (1) is a joint distribution function with margins F1; F2. Proof We show existence and uniqueness of the copula when F1, F2 are continuous and converse statement in its general forms according to Nelsen (2006). For any x1; x2 in R ¼ ½1, þ1, we may infer that if X has distribution function F then

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F ðx1 , x2 Þ ¼ PðF 1 ðX 1 Þ  F 1 ðx1 Þ, F 2 ðX 2 Þ  F 2 ðx2 ÞÞ: Since F1; F2 are continuous, it imples that the distribution function of (F1(X1), F2(X2)) is a copula, which we present C, and obtain the identity (1). If we present (1) at the arguments xi ¼ F 1 i ðui Þ, 0  ui  1, i ¼ 1, 2, and through a transformation, we obtain
 1 Cðu1 , u2 Þ ¼ F F 1 1 ðu1 Þ, F 2 ðu2 Þ

ð2Þ

Which provides an apparent formula of C regarding F and its margins, and hence shows the uniqueness. For the converse statement which assume that C is the copula, and F1, F2 univariate distribution functions. With constructing a random vector with df F(x) ¼ C(F1(x1); F2
(x2)) by taking U tobe a random vector with distribution function 1 C and setting X≔ F 1 1 ðU 1 Þ, F 2 ðU 2 Þ : We then verify that
 1 PðX 1  x1 , X 2  x2 Þ ¼ P F 1 1 ðU 1 Þ  x1 , F 2 ðU 2 Þ  x2 ¼ PðU 1  F 1 ðx1 Þ, U 2  F 2 ðx2 ÞÞ ¼ CðF 1 ðx1 Þ, F 2 ðx2 ÞÞ: The proof is completed. This theorem makes clear the main idea of describing the dependency structure applying copula functions, the properties of the boundary and the topology are dissolvable, therefore, we can construct boundaries independently. The copula funtions help us to recognize tail dependencies. These quantities measure the degree of dependence between random variables that derive from observing extremes. From a geometric point of view, tail dependence represents the concentration on the upper and lower tails of the simultaneous distribution function of two random variables X1 and X2. We formally state the definition as follows: Definition 2 (Upper and lower tail dependence). Given random variables X1 and X2 with margins F1 and F2, the measures of upper and lower tail dependence are determined by:     1 1 1 λU ¼ lim P X 2 > F 1 2 ðsÞjX 1 > F 1 ðsÞ , λL ¼ lim P X 2  F 2 ðsÞjX 1  F 1 ðsÞ : s!1

s!0

If λU (corresponding, λL) is positive, two variables are called to be upper tail (corresponding, lower tail) asymptotically dependent; if λU (corresponding, λL) equals to 0, two variables are called not to be asymptotically independent. This definition can be restated thanks to interpretation of two-dimensional copula function as follows:

The Effect of Covid 19 Pandemic on the Financial Market’s Performance:. . .

λU ¼ lim

s!1

3.2.2

145

1  2s þ C ðs, sÞ C ðs, sÞ , λL ¼ lim : 1s s s!0

The Two-Dimensional Copula Student

There is a quantity of copula functions formed depending on the approach. However, regardless of the type of copula, there is a set of characteristic parameters, which could describe the relationship between the variables in the simultaneous probability distribution function, such as volatility or correlation. Such as, for Student copula, given tv : R ! R be a Student distribution with the degrees of freedom ν: Zx t ν ð xÞ ¼ 1


  νþ1 2 Γ νþ1 x2 dx, pffiffiffiffiffi 2
ν 1 þ ν πνΓ 2

ð3Þ

in which Γ is Euler function. For correlation coefficient ρ 2 I and tρ, v is a function of the simultaneous distribution of two random variables with the same Student distribution: Zx

Zy

1

1

t ρ,ν ðx, yÞ ¼

 νþ2 2 1 s2 þ t 2  2ρst pffiffiffiffiffiffiffiffiffiffiffiffiffi 1 þ dsdt: νð1  ρ2 Þ 2π 1  ρ2

ð4Þ

A Student copula-t is the following function: 1 1 tZ ν ðuÞ tZ ν ðvÞ

Ctρ,ν ðu, vÞ

¼ 1

1

 νþ2 2 1 s2 þ t 2  2ρst pffiffiffiffiffiffiffiffiffiffiffiffiffi 1 þ dsdt, 2 2 νð1  ρ Þ 2π 1  ρ

ð5Þ

where t 1 v is the inverse function of the one dimensional Student distribution and v, is the degree of freedome If marginal functions F1, F2 are two Student distributions with the same degree of freedom v and C is the Student copula with the parameters v and ρ, a two-variable distribution function F defined as in Eq. (5) is indeed a normalized 2-dimensional Student distribution, with μ ¼ 0, linear correlation coefficient ρ and degree of freedom ν. From the above formulas, the parameters related to Student’s copula can be calculated as shown in the following Table 1.

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Table 1 Copula Student and tail dependence coefficients Copula Student

C(u, v)
 1 t ν,ρ t 1 ν ðuÞ, t ν ðvÞ , in which tν, ρ is a 2-dimensional student probability distribution function with parameter ρ and degree of freedom ν, and t 1 ν is the inverse function of tν

λL

λU qffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi

ðνþ1Þð1ρÞ 2t νþ1  ð1þρÞ

Source: Adam et al. (2013)

3.2.3

Method to Estimating Parameters of a Copula Function

For the purpose of estimating the parameters of a copula function in a given family, one can use one of three methods: Exact Maximum Likelihood (EML) method; Inferential Function Method for Boundaries (IFM); Non-parametric Kernel (NK) method. In this paper, the IFM method is used. The IFM algorithm includes the following steps: 1. Determining likelihood functions L for simultaneous distribution function, Lj for margin j  Φ and Lc for copula function c

Lðω, θÞ ¼

T X

ln cðF 1 ðx1t ; θ1 Þ, F 1 ðx2t ; θ2 Þ; ωÞ þ

t¼1

T X 2 X t¼1


 ln f j xjt ; θ j ,

j¼1

T
 X
 Lj θ j ¼ ln f j xjt ; θ j , t¼1

Lc ðωÞ ¼

T X







ln c F 1 x1t ; b θ1 , F 1 x2t ; b θ2 ; ω ::

t¼1

(in which, vectorθ ¼ (θ1, θ2) includes all the parameters of the boundary distributions and vector ω includes all the parameters of copula). 2. For each normalized margin, estimate the parameters θj on a compact domain Θj thanks to Maximum Likelihood method:
 b θ j ¼ arg max Lj θ j : θ j 2Θ j

3. Estimating parameters ω of copula on a compact domain Ω due to Maximum Likelihood method: b ¼ argmaxLC ðωÞ: ω ω2Ω

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147



b, b 4. Estimating b βIFM ¼ ω θ :. IFM estimations are obtained in the process of solving a system of equations: 

∂L1 ∂L1 ∂Lc , , ∂θ1 ∂θ1 ∂ω

 ¼ 0,

while MLE estimations are deduced from finding solution for a system of equations: 

∂L1 ∂L1 ∂L , , ∂θ1 ∂θ1 ∂ω

 ¼ 0:

With regularity conditions, the IFM estimations gradually are asymptotical to a normal distribution, i.e.

pffiffiffiffi
 T b βIFM  β0 ! N 0, G1 ðβ0 Þ : In which, G(β0) is the information matrix Godambe:
T Gðβ0 Þ ¼ D1 V D1 , h i   T D ¼ E ∇β sðβÞ , V ¼ E sðβÞsðβÞT , and sðβÞ ¼ ð∂L1 ∂θ1 , ∂L2 ∂θ2 , ∂Lc ∂θω Þ : Specifically, in this paper, the steps to study the dependence structure between Covid 19 pandemic and the stock market performance are conducted as follows: – Selecting marginal distributions for returns of . . . using non-parametric method, i.e., using empirical probability distribution functions of returns as their marginal distributions. – With the marginal distributions being the empirical probability distributions of the two series of returns, estimating the Student’s copula parameters using the method of Maximum Likelihood. – Estimating the tail dependence coefficients representing the dependence between the two returns in extreme situations and compare the degree of between the quantity of total covid cases and the stock market index of each country chosen. – Procedures are carried out with the help of Eviews, and Matlab software.

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4 Empirical Results The data is collected in the period from Jan, 23rd 2020 to Apr, 30th 2021 including 332 observations. Moreover, returns are calculated as the logarithm of ratio of two consecutive values. If Vt and Vt-1 are respectively the value of the research serie at the time t and (t-1), the return will be computed by: 

 Vt Rt ≔ log : V t1 First, one has a look at the changes of original time series chosen as in Figs. 1 and 2.

Total covid cases of Vietnam 3500 3000 2500 2000 1500 1000 500 0

VN-Index 1400 1200 1000 800 600 400 200 0

Fig. 1 Charts of stock indices and total covid cases in Vietnam

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Total covid cases of Thailand 70000 60000 50000 40000 30000 20000 10000 0

SET-Index 1800 1600 1400 1200 1000 800 600 400 200 0

Fig. 2 Charts of stock indices and total covid cases in Thailand. Source: The authors’ analysis

Table 2 shows descriptive statistics for returns from the stock markets and total Covid 19 confirmed cases. Specifically, RCOVID_VN and RCOVID_THAI are, respectively, returns of total covid cases of Vietnam and Thailand. RVNINDEX and RSETINDEX are, respectively, returns of Vietnamese and Thai stock market indices. Table 2 indicates the descriptive statistics, for example, mean, standard deviation, minimum, maximum, skewness, kurtosis, and Jarque-Bera. Specifically, the means of the return of the stock index of Vietnam and Thailand are close to zero. Further,

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Table 2 Descriptive Statistics Items Mean Median Maximum Minimum Std. dev. Skewness Kurtosis Jarque-Bera Probability Sum Sum Sq. dev. Observations

RCOVID_VN 0.022021 0.003044 1.386294 0.000000 0.092136 11.10248 152.8742 316592.3 0.000000 7.288928 2.801378 331

RVNINDEX 0.000674 0.001887 0.048600 0.069076 0.015207 1.275744 7.622223 384.4432 0.000000 0.223196 0.076311 331

RCOVID_THAI 0.029300 0.003138 0.806088 0.000615 0.083371 5.705608 42.79251 23634.22 0.000000 9.698199 2.293731 331

RSETINDEX 1.80E-05 0.000000 0.076531 0.114282 0.016813 1.772479 16.40902 2653.084 0.000000 0.005974 0.093287 331

Source: The authors’ analysis

the skewness of series is different from zero with a right skewing. The results of Jarque-Bera test depict the normality distributions of stock returns. In addition, the Jarque-Bera test extract a p-value, which is close to zero, rejecting normality distribution of both returns stated in null hypothesis. According to Blanca et al. (2013), non-normalized distributions regularly appeared in the social sciences, and copula approach could be preferred. Figure 3 depicts the normality q-q plots of series of the returns, and it shows a non-normalized pattern. In addition, the tough departure away from the linear graph in the two tails of the q-q plots depicts non-normalized big-tailed manner of the returns. In addition, scatter plot depicting the dependency structure between index returns is another useful reference as in the following Fig. 4. In addition, to work with time series, it is necessary to first check the stationarity of the returns. The following Table 3 presents results. The results in Table 3 confirm that all the returns are station, and it is possible to move on to the next step to study the dependency structure between pairs of returns using the copula function Student. The parameters of the Student copula, including the correlation coefficient ρ and the number of degrees of freedom ν. The results are as shown in Table 4 as follows: The results in Table 4 show that there exists a positive nonlinear correlation between Covid 19 pandemic spread and stock market in Vietnam, a negative nonlinear correlation between Covid 19 pandemic spread and stock market in Thailand. In addition, with these parameters for the Student copula, we can describe the Student copula density function for the simultaneous distribution of each pair of returns as shown in Fig. 5. Finally, to study the probability of two returns raising or falling, we calculate the tail dependence coefficients between the two series of returns, according to the formula shown in Table 1, and because the Student copula function is characterized

The Effect of Covid 19 Pandemic on the Financial Market’s Performance:. . .

RCOVID_VN

151

RVNINDEX

.3

.06

Quantiles of Normal

Quantiles of Normal

.04 .2

.1

.0

.02 .00 -.02 -.04

-.1 0.0

0.4

0.8

1.2

-.06 -.08

1.6

Quantiles of RCOVID_VN

-.04

RCOVID_THAI

.08

RSETINDEX .06

.2

.04

Quantiles of Normal

Quantiles of Normal

.04

Quantiles of RVNINDEX

.3

.1 .0 -.1 -.2 -.3 -0.4

.00

.02 .00 -.02 -.04

0.0

0.4

0.8

Quantiles of RCOVID_THAI

1.2

-.06 -.12

-.08

-.04

.00

.04

.08

Quantiles of RSETINDEX

Fig. 3 Q – Q plots of stock indices returns and Covid 19 confirmed cases. Source: The authors’ analysis

by a symmetric function, so lower and the upper tail dependence coefficients are the same, the calculation results are shown as in Table 5. The upper tail dependence coefficient implies the probability of the fact that two returns seem to go up simultaneously while the lower tail dependence coefficient indicates the probability of the fact that two returns seem to go down together. Table 5 depicts that the probability of the event in which the returns of total cases of covid pandemic in Vietnam and Vietnamese stock market index raise or fall together was about 5.86 percent during the period from Jan, 23th 2020 to Apr, 30th 2021. In the same period, the probability of the event in which the returns of total cases of covid pandemic in Thailand and Thai stock market index go counterclockwisely was about 7.81 percent, which was a bit greater.

152

V. C. Nguyen and T. T. Nguyen .06

.08

.04

.04

RSETINDEX

RVNINDEX

.02 .00 -.02

.00

-.04

-.04

-.08

-.06 -.08 0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

-.12 -0.2

RCOVID_VN

0.0

0.2

0.4

0.6

0.8

1.0

RCOVID_THAI

Fig. 4 Scatter plot of returns of stock indices and total covid cases. Source: The authors’ analysis Table 3 The stationarity test of the data returns

Returns rVNINDEX rCOCVID_VN rSETINDEX rCOCVID_THAI

Augmented Dickey–Fuller test Intercept and Intercept trend None 16.512* 16.666* 16.507* * * 5.033 5.687 4.551* * * 6.034 8.534 6.032* * * 4.263 4.025 4.061*

Phillips-Perron test Intercept and Intercept trend 16.591* 16.741* 18.583* 18.665* 20.331* 20.388* 14.886* 15.146*

None 16.611* 18.596* 20.355* 14.112*

Note: * denotes statistically significant at the 1% level Source: The authors’ analysis Table 4 Estimations of the Student’s copula parameters Pairs of returns rCOVID_VN—rVNINDEX rCOVID_THAI—rSETINDEX

Correlation coefficient ρ 0.0228 0.0029

Degree of freedom ν 5 4

Source: The authors’ analysis

However, these special dependence coefficients could not tell us which factor is the reason and which factor is the result. Therefore, we carry out Granger Causality Test as in Table 6. The results reveal that after at least ten days, observator could find the positive influence of Covid 19 pandemic on Vietnamese stock market index. Simultaneously, after only five days or a week, one could notice the negative effect of Covid 19 pandemic on Thai stock market index.

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rCOVID_VN - rVNINDEX 4 3 2 1 0 1

0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1

0

0

0.1

0.2

0.6

0.7

1

0.5

0.9

0.4

0.8

0.3

0.6

0.7

1

0.5

0.9

0.4

0.8

0.3

rCOVID_THAI - rSETINDEX 6 4 2 0 1

0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1

0

0

0.1

0.2

Fig. 5 Student copula density function for the simultaneous distribution of each pair of returns. Source: The authors’ analysis Table 5 Results of tail dependence coefficient estimation Pairs of returns rCOVID_VN—rVNINDEX rCOVID_THAI—rSETINDEX

Tail dependence coefficient Coefficient of lower tail 0.0586 0.0781

Coefficient of upper tail 0.0586 0.0781

Source: The authors’ analysis

5 Conclusions The Covid 19 pandemic is an unceasing worldwide pandemic of coronavirus disease 2019, and has been severely impacted the financial market in specific, and the global economy in particular since 2020. In each country, the financial market can create liquidity by growing business and raising financial resources to the ventures. This study aims to examine the influence of the Covid 19 pandemic on the financial market performance of two major ASEAN economies such as Vietnam, and Thailand. By using the advanced econometrics based on copula approach, the results indicate that the probability of the relationship between the returns of total confirmed cases of covid in Vietnam and the stock market index raises or falls together was about 5.86 percent while a bit greater of about 7.81 percent for Thailand during the period from Jan, 23th 2020 to Apr, 30th 2021. In addition, the results reveal that after at least ten days, the positive influence of Covid 19 pandemic on Vietnamese stock market index and after only five days or a week, the negative effect of Covid 19 pandemic on Thai stock market index could be found.

154 Table 6 Granger Causality test

V. C. Nguyen and T. T. Nguyen H0: rCOVID_VN does not Granger Cause rVNINDEX Lags F-statistics P-value Conclusion 1 0.00199 0.9644 Accepted 2 0.01979 0.9804 Accepted 3 0.37173 0.7735 Accepted 4 0.42088 0.7936 Accepted 5 0.49746 0.7781 Accepted 6 0.39225 0.8838 Accepted 7 0.48808 0.8431 Accepted 8 0.42215 0.9074 Accepted 9 0.42254 0.9227 Accepted 10 1.68526* 0.0834 Rejected 11 1.53764 0.1172 Accepted 12 1.62431* 0.0840 Rejected 13 1.68061* 0.0643 Rejected 14 1.65561* 0.0644 Rejected H0: rCOVID_THAI does not granger cause rSETINDEX 1 0.00079 0.9776 Accepted 2 1.35464 0.2595 Accepted 3 1.86042 0.1362 Accepted 4 1.53288 0.1924 Accepted 5 4.14633*** 0.0012 Rejected 6 4.79546*** 0.0001 Rejected 7 4.28378*** 0.0002 Rejected 8 4.70778*** 0.0000 Rejected 9 5.34237*** 0.0000 Rejected 10 5.28450*** 0.0000 Rejected 11 6.57552*** 0.0000 Rejected 12 7.37625*** 0.0000 Rejected 13 6.89913*** 0.0000 Rejected 14 6.49090*** 0.0000 Rejected Notes: ***, * significance at 1%, and 10% Source: The authors’ analysis

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Initial Responses to COVID-19 Pandemic in Turkey: General, Financial, and Legal Measures Volkan Göçoğlu

and Hayriye Şengün

1 Introduction The pandemic started in Wuhan, China and spread to almost all countries of the world in a short time like four months. As pandemic cases began to be detected and increased in countries, they have started to pursue various policies such as closing the city and country borders, social distance practices, prohibition of going out and creating herd immunity. Bruin et al. (2020, p. 4) grouped these policies in six basic groups. The first group is “mobility restrictions”, which aims to reduce the rate of spread of the outbreak by limiting the mobility of people. The second group is “socio-economic restrictions”, which includes the policies of schools taking a break from education, stretching the way of working in the sectors, and stopping tourism and sports activities. The third group is “physical distancing” which includes the rules such as people’s standing at distance 1.5–2 m apart from each other in social settings. The fourth group is “hygiene measure” which includes rules such as wearing a mask and paying attention to hand hygiene. The fifth group is “communication”, which includes policies that will determine mass communication during the pandemic. Finally, the sixth group is the “international support mechanism” that includes the support policies of countries and international organizations during the pandemic. At this point, Allam and Jones (2020) emphasize the introduction of a standard for smart city information sharing systems to ensure urban security in COVID-19 and other disasters.

V. Göçoğlu (*) Afyon Kocatepe University, Afyonkarahisar, Turkey H. Şengün Bayburt University, Bayburt, Turkey e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 N. Mansour, L. M. Bujosa Vadell (eds.), Finance, Law, and the Crisis of COVID-19, Contributions to Management Science, https://doi.org/10.1007/978-3-030-89416-0_10

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Undoubtedly, these policies and the new health awareness created by the pandemic all over the world have had many effects, especially economic and social. Vito and Gomez (2020) investigated the effects of the pandemic on the liquidity of firms in their countries and emphasized that this would have a negative impact on firms, while underlining the measures to be taken. Wen et al. (2020), while addressing the changes that pandemics will cause in the tourism and accommodation habits of the people through the Chinese, emphasized that they can now focus on tourism types such as free and independent tourism, luxury tourism and health tourism. According to the authors, if tourism policies are shaped according to the pandemic, the negative effects of the pandemic on tourism can be minimized. Smith et al. (2020), who approaches the effects of a pandemic in terms of health in their study, emphasized that it is important to carry out a health policy regarding the use of Telehealth method in the provision of health services in terms of reducing the spread of the disease. Wilkinson (2020) underlined the necessity to make policies according to local needs to combat the pandemic, in the regions which are named as non-officially living areas as well as in the cities. On the other hand, Pfrimer and Barbosa Jr (2020) emphasized that the main actor should be healthcare professionals and scientists in the basic policy of fighting pandemics implemented by governments. The authors, who examined the example of Brazil, stated that the pandemic struggle here is seen by the government as a conflict and war rather than a crisis, and that is why a wrong policy was implemented made by military and politics rather than the scientific committees. Similarly, Liu et al. (2020) emphasized that there should be a balance and compromise between politics and science in the fight against the pandemic through the example of China. In another study conducted in China, the outbreak of the pandemic, Huang et al. (2020) examined the emergency information dissemination period in the country in five dimensions. These dimensions are the Progression of the Pandemic, Medical Response, Government Response, Public Response and Media Response. In these studies, the authors analyzed and compared these five dimensions of information sharing. At this point, it is useful to mention the contribution that our study is expected to contribute to the COVID-19 literature, which is still very fresh, especially in the social sciences. It can be seen that the studies conducted in the field of social sciences so far have been carried out on the examination of various policies produced against pandemic and specific problems in various countries. Studies that reveal the policies of countries in their fight against the pandemic are crucial to see the best practices and to combat the ongoing COVID-19 pandemic and other outbreaks in the future. In this sense, “Government Response”, one of the five dimensions that Huang et al. (2020) deals with, is important in analyzing the policies adopted by the central governments of the countries against the pandemic. In the relevant literature, studies dealing with the policies pursued by central governments from a general perspective are very few. For example, Moon (2020) has investigated how agile, transparent and participatory policy South Korea is pursuing to combat the COVID-19 pandemic. It is important to carry out such studies from every country in terms of literature and fighting with pandemics.

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2 General Aspects on COVID-19 on the Context of Public Administration Throughout its history, pandemics have not only caused fear and panic in society when they occur but have also caused radical social changes in the long run. In today’s process, the choices people make in their daily lives, the functioning of institutions such as hospitals, universities, and non-governmental organizations, and the political mechanisms of states are being re-defined due to the pandemic. In terms of public administrations, the state’s existence, the central state’s effectiveness, the concept of the social state, divisible services, etc., are being re-questioned. With the end of this process, it can be said that new evaluations and discussions will be witnessed with different state models and solution-making practices. One dimension of this questioning will undoubtedly be the reinterpretation of the social contract. Discussions about what kind of powers and privileges should be transferred to the state and which ones should remain with citizens or civil society seem to be on the agenda. One of the concepts redefined in the social dimension is the concept of citizenship. “Netizenship”, a new concept formed with the level of technology today, is an example of such redefinition efforts. It can be said that the process of reshaping social life together with the new definition of citizen that emerged with the intervention of the digital age on lifestyles will create the most intense discussion areas of public administrations in the coming period. Since the first day of the COVID-19 outbreak, country leaders around the world have taken different approaches to the pandemic. When we consider the COVID-19 global pandemic as a disaster, the fact that public administrations have to do something with the management process of this disaster is also revealed. The public administration approach, which varies according to the governance structure and organization style of each country, has made some countries more successful in the struggle and some have failed. In the process of increasing casualties in countries due to the COVID-19 Pandemic, it has been witnessed that the management problem gradually becomes the focus of the discussions (Weible et al., 2020, p. 228). Countries that are prepared for a suffer less losses, while countries that are unprepared continue to suffer more losses. In fact, the massive deaths have made the pandemic a policy title in itself (see Zavattaro, 2020). For successful struggle, there is a need for a health bureaucracy, which can transfer the current situation to the top officials from the beginning of the disease, on the other hand, a skilled government that takes care of the messages conveyed to it and makes suitable decisions and implements them. In this sense, the risk reduction-based pandemic management approach should be the method that should be applied meticulously by governments in the process. It is important for health management to act together with other elements of public administration, to ensure full coordination and to minimize harm. For example, it should be considered that the curfew decision taken without analyzing the social effects and without consulting the scientific committees on this issue will greatly fail all efforts.

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In the post-pandemic period, the decisions that will weaken the effect of globalization and the decisions to move the production areas abroad within national borders are discussed in the economic agendas of the countries. This situation will reduce foreign capital investments in developing countries and will put these countries in economic difficulties. The pandemic has led to an increase in unemployment in the tourism sector due to quarantine measures during the pandemic process in countries such as Turkey, with a high share of tourism income in national income. It can also be said that governments exhibit more authoritarian behaviors instead of democratic ones in order to prevent possible social movements due to such situations. In this context, policies such as implementing precautionary economic packages and austerity policies may lead to the authoritarianism of democratic governments that do not have a strong economy. Therefore, the attitude of the world’s public opinion against the authoritarianism of the country’s governments will shape the future. The emergence of nationalism in the country’s politics, the acceleration of the use of robotic technology in production, the impact of economic problems on large masses, and unemployment seem to accelerate internal conflicts. The weakening of globalization due to the effect of the pandemic causes the nationstate borders to gain importance again. In this process, the duties and functions of supranational organizations such as the EU and NATO, which did not use sufficient initiative, were also opened for discussion.

3 Sectoral Effects of the COVID-19 Pandemic It would be appropriate to deal with the social and economic effects of the pandemic on a global scale first. Because, in the social and economic conditions that came with globalization, it is crucial to understand the effects of a global pandemic with a deductive approach to catch the big picture. One of the most important reflections of the globalization process has been seen in production and consumption. With the development of technology, communication, and transportation networks, the capitalist understanding of production and consumption has made the boundaries of the concepts of place and time unclear. Companies aimed to use the developments in these areas in the best way to have a higher market share in their sectors (Harvey, 1991). The mobility of both products and the workforce used in the production of products has increased. Globalization, the information society, and the changes in economic and social life have differentiated the effects of the pandemic from the previous pandemics experienced in world history. Thinking about the economic effects of the pandemic, Fernandes (2020, p. 6) compared it with the 2008 crisis and listed the reasons for these differing effects. Among the reasons, “not focusing only on low-middle income countries,” “the world’s being much more integrated at the time,” and “spreading and continuing along the supply chain” are issues that refer to globalization. Thus, experiencing the pandemic on a global scale has led to the destruction of both supply and demand in terms of the economy. This situation will

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negatively affect the economies of all countries, causing a decrease in global GDP and an increase in unemployment (OECD, 2020). Industries that have become interdependent with globalization have also been affected by this crisis to every degree. Nicola et al. (2020) examined the effects of the COVID-19 pandemic in the first, second and third sector groups in their study. In agriculture, which is one of the primary sectors, the decreasing demand for agricultural products, especially in the hotels’ restaurants due to tourism, caused the prices of agricultural products to fall significantly. Governments tried to reduce these effects with agricultural support programs. The other primary sector affected by the pandemic was the fuel sector. This sector suffered a price collapse due to the dispute between Saudi Arabia and Russia, exposed to more negative effects during the pandemic process. The decrease in people’s demand for oil due to both sectoral uncertainty and pandemic restrictions was effective in this situation. The manufacturing sector, one of the secondary sectors, suffered the most from global uncertainty. Along with the pandemic, the production chain steps of many products and of course the demand were adversely affected. Tertiary sectors included education, finance, health, tourism, technology, and research. In the education sector, closure and distance education practices were implemented in almost all countries. In addition to these practices, some relaxing practices such as discounts on school fees were also carried out in some countries as students could not go to school. These practices created an additional economic burden for students who received free meals from school and their families. On the other hand, expenditures for providing technological infrastructure for distance education also brought a financial burden to families. Solutions for quality education were sought in faculties where applied sciences were dominant (Rose, 2020; Pradeep, 2020; Wei, 2020). In the financial sector, the unplanned closures made during the crisis negatively impacted the production chains. On the other hand, closure and home quarantine practices implemented worldwide (Yezli & Khan, 2020; Lewnard & Lo, 2020; Bhuiyan et al., 2020) increased people’s consumption tendencies. Thus, the supply could not keep up with the demand. This situation destroyed the financial structures of the companies, and the companies started to shrink. Gold and dollar prices became unstable, and governments took supportive financial measures against them. The biggest crisis in the health sector was the risk of contamination from other patients during their work. The vital risks of healthcare workers, who were at the forefront in the fight against the pandemic, their working hours, and the inadequacy of their numbers in the crisis were among the essential topics (Bauchner & Sharfstein, 2020; Yang et al., 2020; Reay et al., 2020). Countries took new decisions on issues such as the working hours of health workers, the measures they will take, and the arrangement of their annual leave. Moreover, not only healthcare workers but also the shortage of medical equipment was important. Masks, intensive care rooms, patient beds, respirators remained insufficient in this global crisis. In order to reduce these adverse effects on equipment, practices such as increasing the production of masks, increasing the production of medical equipment, and aids to other countries were carried out.

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The tourism sector (Gossling et al., 2020; Baum & Hai, 2020) and the sports sector (Parnell et al., 2020; Ratten, 2020; Ludvigsen & Hayton, 2020) were also the first to be abandoned in the social and economic crisis of the pandemic. One of the first policies implemented by countries to reduce the spread of the pandemic was closing the country’s borders. As an extension of the policy, touristic travels were also prohibited. This situation caused the tourism revenues of the countries to be cut off and significant losses in the tourism sector. Likewise, the sports industry also suffered from these closures. National sports competitions were paused for a while in some countries and then played without spectators. International competitions were suspended. The technology and research sector had been a growing and developing sector in the pandemic. The idea of using technology in the fight against the pandemic was adopted as a general method (Ting et al., 2020; Park et al., 2020). First of all, vaccine studies, which were seen as the only remedy in the fight against the pandemic and initiated by equal countries, led to positive activity in this sector. In the field of health, the production of respirators and masks and other health technology researches increased. Apart from the health dimension in the technology sector, there was also an increase in demand due to people’s quarantine and closure practices in their homes. This increase in demand led to an increase in the prices of computer-based Technologies. As discussed above, the COVID-19 pandemic has had some effects on all sectors. In academic studies, each discipline examines these effects in detail, and suggestions were made to reduce the adverse effects. In this respect, it would not be wrong to say that the pandemic has suddenly become the focus of all branches of science. The study you are reading focuses on the measures taken by Turkey to reduce the said effects and approaches this focus from the framework of public administration. In this context, it would be useful to examine in the ministries what kind of policies are being followed to reduce the negative national effects of the pandemic in Turkey.

4 Ministries’ Policies in Turkey’s Fight Against COVID-19 The information to be given in this title was obtained as a result of a simple content analysis on the official Twitter accounts of the ministries. These tweets were determined according to a specific systematic. First of all, the detailed search function of Twitter was applied to reach the sample. This function can reach all of the tweets of individual accounts on specific dates and contain certain words. To access sample tweets, the researchers wrote the official accounts of each ministry for each search in the “From What Accounts” section of this function. The date range to search for tweets was determined as 12 December 2019, when the first COVID-19 case was detected in China, and the last date on which the study was conducted, was 5 June 2020. Since the targeted tweets are related to the COVID-19 pandemic, the words “COVID-19”, “Korona,” “Koronavirus” and “Pandemi” (Turkish words) are written in the tweet content section. Thus, all the tweets containing the words COVID-19, Korona, Koronavirus, Pandemi between 12 December 2019–5 June

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2020 were reached. All the following inferences were made by the researcher reading and interpreting the tweets obtained. Since sufficient scientific studies on the epidemic have not been published yet, it has been avoided to obtain the policy information applied by the ministries in the fight against the pandemic from secondary sources such as newspapers and websites. The Ministry of Health was the most active one in this period. In this, Turkey’s health services, health infrastructure and public health policies had an important role. As a result of rapid decision taken by the ministry, two months before the identified cases in Turkey, Coronavirus Science Board was established on January 10, 2020. As the scientific committee has already been established, the policies to be adopted have started to be produced in the early period with the consultancy of this expert committee. The Ministry of Health focused on the topics such as the emergence of the disease, ways of transmission and prevention, frequently asked questions and symptoms of the disease. In addition, data on daily cases, deaths, intensive care patients and intubated patients were announced. The most important one of the policies adopted by the Ministry in this process is the “Social Distance” and “Life is Home Fit” (Hayat Eve Sığar) policies. These policies were adopted as a general policy of Turkey’s struggle. The policies were announced and implemented by all institutions and organizations, public and private. The Ministry of Health developed a mobile application called “Hayat Eve Sığar” for this policy. With this application, services were provided to citizens for displaying disease risk related to the regions, disease connection of family members, social distance due diligence and the HES code to be used for intercity travels during the pandemic. The Ministry of Family, Labor and Social Services addressed both internal measures to be implemented in affiliated institutions and general measures to be applied across the country. Beyond that, the Ministry played a major role in the fight against COVID-19 policy, In this regard, the Ministry followed the “Short-Term Work Allowance” policy and shared three tweets in this regard, so that the people in the country could sustain their livelihood during the pandemic. On the other hand, in order to reduce the negative effects of “curfew limitation over 65 years of age” application, which was carried out since the beginning of the pandemic, it provided assistance services to the elderly to meet their household needs. The ministry made arrangements to provide a higher coverage of health expenditures by the state in order to strengthen the social security of citizens against the pandemic. The Ministry continued its policy of helping the elderly at home intensively during the pandemic. The Youth and Sports Ministry signed an unusual policy according to other countries. The state dormitories built to accommodate university students were used as quarantine areas in the pandemic process. The citizens, especially come from abroad, were kept in quarantine in these institutions for fourteen days. Apart from this, the Ministry followed policies such as mask production, care of street animals, increasing the morale and motivation of healthcare professionals, and early payment of students’ scholarships and loans for support purposes. The ministry also organized activities for students such as drawing pictures and writing letters to increase the morale and motivation of healthcare professionals. These gifts were shared with healthcare professionals.

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Another ministry that played a vital role in the fight against COVID-19 was the Ministry of Interior. The main practices of the Ministry’s policy towards general measures were to stop the activities of hairdressers and beauty salons, stop the acceptance of customers to restaurants and patisseries, regulate the working hours of the markets, limit the flight and bus services, the taxi services, worship in the mosque, the city entrance. The ministry also fought with disinformation and provocation, especially related to pandemics in social media. In the pandemic, frequent sharing of wrong information from unofficial sources and social media accounts regarding the number of cases and deaths was intensive. Activities such as art programs, “effective library at your home”, “remote but together art” practices and reading activities were offered to citizens by Ministry of Culture and Tourism in the pandemic process. In this respect, the Ministry continued to provide services to the society, even from a distance. During the pandemic, the Ministry of National Education came to the fore with the wide-ranging policies it adopted due to the wide scope of the education service. The most prominent of these policies was undoubtedly the distance education application in primary and secondary education across the country. With Eba TV, students took their lessons through distance education throughout the process. The Ministry, announced general measures taken in the field of education. These practices included transition to distance education, suspension of special education and driving courses activities, postponing exams. Some of the policies implemented by the Ministry were related to the practices pursued to circumvent the process with less negative impact by students and parents. Practices within the scope of the policy in question were remote psychological support for children and guidance for families. Besides, the Ministry provided considerable support for Turkey’s fight against the pandemic by executing the vocational high schools in masks and disinfectant production. While general measures included measures to be followed by the whole society on a country basis, measures such as establishing COVID-19 Struggle Center within the Ministry, interrupting education in affiliated schools, postponing exams, maintaining the hygiene of buildings and wards in the army, recruiting and discharging. The Ministry of Industry and Technology also played an important role in the process. One of the most important of the applications was domestic respirator production. Respiratory devices, which were essential for pandemic intensive care patients, were produced domestically and planned to be sent to other countries with the policy pursued by the Ministry. PCR kit development and local synthesis drug production policy were followed. Another practice was to gather support from industrialists to combat the pandemic. In addition, the Ministry provided R&D support and various incentives to support industrialists’ activities. Development agencies were supported by various incentives. In addition, the Ministry followed a mask production policy and distributed free masks. The Ministry also gave the opportunity to contribute to other actors in the fight against the COVID-19 pandemic, supporting projects related to the struggle, rapid support and trainee researcher programs. TUBITAK journals were offered for open access, to the public. These measures taken by The Ministry of Agriculture and Forestry were mainly food hygiene measures such as COVID-19 virus screening in wastewater, controll of

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imported products. The other measures were to be taken by food companies, food workers, and closure of parks. Applications such as to protect the heritage of seeds, to conduct COVID-19 studies at veterinary research institutes, to increase the production of dry beans and lentils due to the pandemic, to postpone credit installments in cooperatives, and to protect street animals were announced. Policies implemented by The Ministry of Commerce were related to general measures such as cancellation of package tours and fairs, postponement of the general assemblies of the cooperatives and the measures taken for exportation. There were other applications such as reducing the density at the border gates with contactless and fast passage, and extending the licenses of licensed warehouse enterprises for a year.

5 Financial and Legal Measures Taken in Turkey’s Fight Against the Pandemic Studying the struggle policies implemented by countries in times of crisis is vital for the success of public policies to be produced in similar situations in the future. The COVID-19 pandemic has created a global crisis environment, and countries have taken various measures against this crisis. While these measures are similar to each other in various fields, they can also be unique. “Best practice examples” that emerge in-country examples may set a precedent for other countries in terms of combating the pandemic. Because the pandemic does not continue on the same course in all countries of the world. In the face of decreasing number of cases in a country in a certain period, another country can see the highest number of cases. In this respect, countries will be able to overcome similar periods experienced before with less negative impact by transferring policies from each other. In this context, Turkey, with its dense population and developing economy, can be a good sample country to fight against the pandemic. It would be helpful to consider the measures taken by Turkey in the economic and legal fields in the fight against the COVID-19 Pandemic under two separate titles.

5.1

The Financial Measures

As in all countries, the government has taken some measures to reduce the pandemic’s adverse social and economic effects in Turkey. However, the systematic and planned creation of these measures and their sharing with the public took nearly one year after the first case in the country. The reason for this is the time needed for the effects and future course of the pandemic to become a little more predictable. Undoubtedly, the economic dimension is perhaps one of the common issues people care about during the pandemic. Because, due to some measures implemented in the fight against the pandemic, many sectors and sector employees suffered material and

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moral losses. For example, tourism has been one of the sectors most affected by the restrictions. In Turkey, in cities such as Antalya, Muğla, and Marmaris, where most of their income is from the tourism sector, many tourism businesses and, therefore the employees of these businesses suspended their activities. Restaurants limited their activities, and many areas in the entertainment sector stopped their activities. In the light of these developments, the government evaluated the measures to be taken in the field of the economy at the Coronavirus Evaluation Meeting held on 18.03.2020 and announced the “Economic Stability Shield” measure package worth 100 Billion Turkish Liras as a result of the meeting (TCHMB, 2020). It is possible to group the contents of the package under several headings according to their subjects. Thus, it will be possible to follow what economic measures Turkey has taken in which areas. Accordingly, it is possible to list the measures taken by the country in the economy as Postponement Measures, Credit Measures, Direct Support Measures, Measures Taken by the Central Bank, and Measures Taken in the Public Sector. Postponement Measures are the measures that cover the postponement of various payments of companies or individuals. In general, they stand out in terms of taxation. Among these measures taken by the government, first of all, there was the policy of postponing VAT and social security premium collections. In many sectors, a total of 53.6 billion TL receivables were postponed for 6 months. Legal payments for hotel rentals were also postponed for 6 months. Taxpayers who are over 65 years old and cannot go out due to their chronic illness postponed their returns and payments until the end of the ban. Instruction was also sent to R&D and design firms to postpone their 2-month rent payments. It was aimed to positively affect the tourism sector by not applying accommodation tax between April 1 and December 31, 2020. On the other hand, in order to keep the domestic air transport sector alive (except for restrictions), the VAT rate in domestic air transport was reduced from 18% to 1% for 3 months. Credit Precautions, besides tax payments, credit payments were also deferred. In this context, loan payments of companies and individuals were postponed for a minimum of 3 months. The debts of the tradesmen and craftsmen, who declared that their business was adversely affected, were postponed in various banks. It was planned to provide continuation loan support to all companies affected by the pandemic. Halkbank, a public bank, postponed loan interests and eased the interest burden of approximately 90 million TL for tradesmen and craftsmen. As a result of the decisions taken, flexibility was given to the delays in loan payments. The waiting period of the loans in delay, which was 90 days before being transferred to the follow-up accounts, was increased to 180 days, and the follow-up transfer period was thus extended. Direct Aid Measures were made in different areas. Minimum Wage Support is one of them. Within the scope of the support, it was applied as 75 TL for 12 months regardless of the size of the business. In order to prevent companies from dismissing employees during the fight against the pandemic, short-time working allowance was given to employees in workplaces affected by the coronavirus. For paid teachers and master trainers, the practice of paying additional course fees during distance

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education was carried out in order to protect their financial situation. In order to strengthen the financial situation of the elderly population, especially during the pandemic, the minimum pension increased to 1500 TL. Applications such as early payment of holiday bonuses and salaries in the public sector and 1000 TL aid to 2,111,000 households were among other direct aid applications. In the Measures Taken by the Central Bank, a total limit of 60 billion TL was determined for rediscount credits. Rediscount loan repayments from 18 March 2020 to 30 June 2020 were extended up to 90 days. In addition, the rediscount credits with open credit commitments and the rediscount credits to be used from 18 March 2020 to 30 June 2020 were given an additional 12-month contract closing period, and the closing period of these credits were increased from 24 months to 36 months. In the measures taken in the public sector, an additional 3 billion TL resource was allocated to municipalities to strengthen the financial situation of local governments. This resource was created by not making 3 billion TL deduction for three months (April–May–June) in monthly tax share payments of municipalities. Furthermore, increasing performance payments to health workers, appointing additional health workers, and combating the pandemic were the measures applied in health, which was the most critical service area. Thus, while trying to improve both the financial situation and motivation of health workers, it was aimed to alleviate the workload with additional appointments.

5.2

The Legal Measures

Many measures were taken in the country to prevent disruption of public services during the fight against the COVID-19 pandemic. These measures were also continued in the provision of legal services. It is possible to categorize the measures taken in this area as Stopping Measures, Measures for Remote Service and Postponement Measures. These measures can be listed as follows (Campaigntr, 2020): In the Suspension Measures, the Decision on the Suspension of Execution and Bankruptcy Proceedings No. 2279 (in the Official Gazette dated March 22, 2020, and numbered 31076) was published within the scope of the measures taken to prevent the spread of the COVID-19 pandemic disease in the country. Within the scope of the decision, starting from 22.03.2020 until 30.04.2020, all enforcement and bankruptcy proceedings will be suspended throughout the country, except enforcement proceedings regarding alimony receivables, and within this framework, parties and proceedings will not be made, new enforcement and bankruptcy proceedings will not be taken, and provisional attachment decisions will not be enforced and executed. Again in the same context, in order to be applied differently in different jurisdictions, to prevent loss of rights since lawyers continue their work from their homes without going to their offices, Courts and enforcement offices make decisions not to make notifications electronically by envelope method. The Measures for Remote Service aimed to reduce the contact between people working in legal affairs and people not to spread the contagion. The practice of

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holding Mediation Meetings by Teleconference was one of them. In another application, with the regulation made by the General Directorate of Land Registry and Cadastre, the applications to be made to the Land Registry and Cadastre Directorates as of 18.03.2020 were to be made through the established Web-Deed system (https:// webtapu.tkgm.gov.tr). Transaction (appointment) requests (including foreign nationals) could be made online through the Alo-181 call center or at www.tkgm. gov.tr. All petitions that must be submitted to the tax office until 10.04.2020 were started to be submitted electronically through the Interactive Tax Office application or sent via mail. Until 10.04.2020, the practice of submitting declarations only through the Ready Statement System for real estate capital income, securities capital income, wages, and other earnings and revenues have been started. Payments for taxes, fees, administrative fines, and valuable paper fees could be paid by credit card through the Interactive Tax Office or contracted banks, instead of tax office cashiers, until 10.04.2020. As for the Suspension Measures, the most important of these is an adjournment of court hearings and discoveries. It was underlined in the advisory decision conveyed to the judicial authorities by the General Secretariat of the High Council of Judges and Prosecutors (HSK). “Within the scope of the recommendations of the Coronavirus Scientific Committee established within the Ministry of Health; In order not to cause any problems in the execution of the judicial activities, our courts should evaluate the issue of postponing hearings and discoveries. When deemed necessary, the use of SEGBIS application, apart from investigations and prosecutions regarding detained works and other matters that can be deemed urgent, and that the necessary attention and care is taken to implement new measures in line with the recommendations of the board. Almost all of Turkey’s economic and legal measures in the fight against the COVID-19 pandemic were national. Therefore, the measures were taken concern all citizens of the country. Economic measures were taken to mitigate the negative effects of the pandemic on the sectors. In addition, it was seen that the majority of economic measures were directed towards functions such as postponement and improvement in taxes and credits. No doubt these were temporary solutions. Beyond that, in the pandemic, which was rumored to have a different mutation every month, the policies created by postponing the financial burdens for specific periods contain uncertainties as no one knows for sure when the pandemic will end. The rate of direct aid should be increased during the pandemic process. Turkey has taken positive steps in this regard. Although these practices have been mentioned above were successful, it is still possible to say that direct aid is a good measure for both Turkey and other countries to reduce the adverse financial effects of the pandemic, especially on citizens. Considering the legal measures taken, it was seen that these measures mainly focus on the remote provision of legal services. In addition, efforts were made to prevent human circulation and thus the risk of contamination in courthouses and judicial authorities, with postponement and suspension measures. Furthermore, in the measures taken, how and in which functions the online applications and systems

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will be used not to interrupt the legal services after the postponement and suspension applications were explained in detail.

6 Conclusion COVID-19 pandemic has become a crisis that affects the whole world. Countries were caught unprepared for such a crisis. The decisions taken by the countries’ public administrations during the crisis and the preventive measures determined the degree of the negative impact of the countries from the pandemic. The effects showed themselves especially in the field of finance, together with the closure practices. In addition to the measures taken in finance, the measures taken in the field of law have changed the functioning of the legal mechanisms in the countries. In this study, which examines Turkey, the measures taken by the ministries in the first periods of the pandemic, when the country was caught unprepared for the crisis, were discussed especially within the framework of finance and law. Among the national measures taken in Turkey, restrictions to prevent collective coexistence come first. These include remote computer and internet-supported training, closure of public areas, cancellation and/or prohibition of sports events, entertainment events, meetings, workplaces’ vacation, or switching to flexible working, “stay at home” practice according to age groups curfew, restriction of international and domestic mobility, social distance communication, etc. The measures taken in the field of finance were heavily determined as postponement and facilitating tax regulations. These arrangements were generally planned as 3–6 month periods. Assuming that the pandemic will continue for more extended periods, these plans will bring together temporary solutions, and direct financial aid-based policies should be at the center in long-term planning. In direct benefits, the government’s increase in the minimum pension is a significant policy to reduce the negative effects of the pandemic on elders. In addition, it is expected that the scope of applications such as 1000 TL aid to 2,111,000 households will be expanded. It has been determined that the measures taken by the Central Bank in the field of finance are generally on postponement. Increasing the number of health workers in the public sector and improving the additional payments they receive are essential as permanent and direct financial aid policies. In the measures taken in the law, the practices of stopping some services and postponing them for a certain period stand out. These practices mostly took the form of suspending enforcement and bankruptcy proceedings and postponing hearings and discoveries. On the other hand, to prevent the spread of the contagion, practices based on making some legal transactions from online platforms have been put forward to reduce the contact between legal professionals and people. Thus, it was ensured that public services were carried out without interruption. Generally, in Turkey’s fight against the COVID-19 pandemic, the practices regarding the uninterrupted execution of various public services, especially finance and law, have mainly been carried out by the central government. In the later stages of the

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pandemic or in other crises that may arise in the future, the spread of direct assistance in finance and remote service applications in the field of law is essential for better crisis management.

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Criminal Activities During COVID-19: Evidence from India Shabnam Parween, Mazhar Shamsi Ansary, and Santosh Kumar Behera

1 Introduction After the creation of the earth, nature has organized itself with various animals, plants, objects, etc. It is true that “Homo sapiens” is considered to be the greatest animal on earth compared to other animals for its unique features of the brain. But since he is an animal, there is a tendency for humans to become vicious, just like any other animal. That is, no matter how much a person tries to be good, violence is present in him as a genetic trait and he cannot evade it no matter how hard he tries. So it can be said that Human Beings are organizational beings. They started to systematize themselves in order to survive. People began to form themselves to prove themselves stronger than the other creatures. The idea of this organizing has made men the greatest creature on earth. Gradually society was formed, Jati, Varna, Dharma were started to demonstrate the finest of a class of society. This idea of being the best is what people have been carrying everlastingly. If we look at the earliest times of India, we will also see this castes, gender, religion, and caste disparities. The social order system was started mainly on the basis of livelihood—Brahmin, Kshatriya, Vaishya, and Shudra. The Brahmins have always been a kind of leader to the other three castes. We notice the deprivation of the three other castes in all kinds of social work. The idea of snatching

S. Parween Department of Political Science, Sidho-Kanho-Birsha University, Purulia, West Bengal, India M. S. Ansary Department of Education, Netaji Nagar College for Women, Netaji Nagar, Kolkata, West Bengal, India S. K. Behera (*) Department of Education, Kazi Nazrul University, Asansol, West Bengal, India e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 N. Mansour, L. M. Bujosa Vadell (eds.), Finance, Law, and the Crisis of COVID-19, Contributions to Management Science, https://doi.org/10.1007/978-3-030-89416-0_11

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this right and the idea of proving oneself the best, has always kept people separate from people. In the middle ages, we tend to notice this idea a slight differently. People discriminate against people mostly on the basis of money and property. At that time, the conflict between the kings was mainly over the possession of the property. Many times kings used to take the property, money of the tenant. In the middle ages, there were many lower-class people at that time. They snatched or killed the property of others for their own needs. People’s thoughts turn into brutal thoughts for making a living. No matter how much we humans prove to be superior, the question when it comes to food, we behave like an animal. At present human society is much more advanced than before. Now-a-days, people do not have to struggle as much as before to meet their biological needs. Now-a-days, the development of technology has made people’s work and life much easier. For many centuries, people have been affected by various pandemic and various diseases. It is not a new issue, this type of pandemic spread and impact in every century has shaken mankind.

2 COVID-19 The Corona pandemic is presently the second fastest-spreading pandemic in world history. This is because the first such catastrophic pandemic occurred in 540 BC, although more pandemics followed later (Guha, 2020). Corona virus syndrome first appeared in China’s Wuhan province in 2019, but today there is no place in the world where corona symptoms are not seen. Gradually it took the lives of many people. Many are bedridden with this disease again. But another thing is that many people have recovered quickly from this disease. So far, the number of confirmed cases is 2,52,28,996; among them, active cases are 3027925 and the number of death is 2,78,719 (WHO Report, 2021). Basically, when the fever, cold, cough, and shortness of breath increase, people can become the victims of corona disease. That is why the World Health Organization has advised India to be vigilant more than other countries. Because of India has huge population, a weak economy, and so on. So people are being warned, people are being made aware of this not only that, people is being promoted to get this vaccine on time. It can be very bad to make the mistake of taking this virus lightly.

3 COVID-19 and India Corona virus disease is an epidemic that started in 2019 but no strong developed country can say when it will end. Although some vaccines for the epidemic have been discovered, it is difficult to say whether the vaccine will prevent the disease at all. In terms of India, it can be said that the 2nd wave of this pandemic is going on in India. And India’s health and medical system are so weak that thousands of people

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are dying just because of lack of oxygen or bed or medical treatment. So day by day, the number of deaths due to this epidemic is increasing so much that there is no place for cremation in cemeteries and graveyards. Not only that, India has a much larger population and India’s economic situation has also deteriorated so much that it is not possible to deal with this Corona (Kumar et al., 2020). It is a virus that has spread like wildfire and killed millions of people. Although the spread of this contagious disease was seen in India much later than in developed countries, it was first detected in India on January 30, 2020 (Golechha, 2020). In 2019, Corona Pandemic started taking the lives of human beings. Since then human life has become much more difficult. Some vaccines for this disease are currently available. But getting only vaccination is not the solution. Because it is an infectious disease that will never go away with just a vaccine, but maintaining distance is a key issue. So the only way Doctors and Experts have found is “lockdown”. Lockdown is a policy that has made it possible to reduce the prevalence and incidence of epidemics in each and every country even in India too. Developed countries such as Italy, Spain and USA where there are improved healthcare systems and such improved services if those places are not fully able to fight out of Corona, so in a developing country like India with a large population, poor health care or medical facilities, densely populated areas, weak economic systems, it is not at all possible to prevent this epidemic. So the best way to prevent this epidemic in India and to prevent infection is to lockdown (Golechha, 2020).

4 COVID-19 and Criminal Activities But it is also true that if there is a good side behind something, then there must be a bad side behind it. While there are good aspects to this epidemic, there are also some bad aspects, one of which is crime or criminal activities. The Lockdown has made a huge impact on normal people. The responsibility of saving others’ lives has become narrow. Even if the lords and upper-class people make a living from their accumulated money, it has become very difficult for the working-class people. On the one hand fear of death and on the other hand, starvation has sent these people back to ancient India. People have started stealing and looting. Where the educated unemployed youth of those families are getting involved in Cybercrime by misusing true knowledge. The only purpose is to make a living and to survive. People always think that judgment is the best in their thinking when it comes to making all kinds of decisions. There is a difference in the jurisprudence of the individual. Each state has its own set of rules and regulations. Individuals under each state also have these rules and regulations. And it is the citizen’s duty to abide by these rules and regulations. If a person violates this rule and establishes his own judgment which is inauspicious for society then in the eyes of society and the state that person is called a criminal. And the action done by this person is called criminal activity. All such acts which violate the limits of the state and are harmful to the individual and society are called criminal activities.

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5 Rationalization of the Work Any kind of social research has an enormous impact on our society as well as daily life, because, social researches are mostly conducted according to the current phenomena or present scenario. In this work the authors are intended to focus on the crime rate and various top rated criminal activities in India during COVI-19. We are living in the age of globalization, modernization, in the world of international brotherhood and also in the world of international peace or peaceful co-existence. Not only are these, but in last two decades we can see that human being become very modern in every aspect of life. Science and technology are in the utmost level of development. In the education system too, several methods theories are executed for the betterment of whole education system in the entire World as well as in India. In Indian scenario, when we are trying to look into it, then we find that the literacy rate is gradually enlarged. Ok, it is a good sign for India, everybody will be very happy to see that figure, because India is the largest democratic country in the World and almost 1.40 billion peoples are living here and it is a good sign that approximately 75% of peoples are literate. But when the authors are trying to find out the criminal rate and activities in India during COVID-19, then we find that a plenty of crime are accomplished by variety types of people. According to NCRB (National Crime Record Bureau, India) so many crimes are taken place in India by not only uneducated peoples but also highly educated fellows. Why the crimes are being executed? What are the factors or reasons behind these crimes? Are there any measures taken by the Govt.? What will be the probable solutions to overcome from these perils? Several questions are running on the authors’ mind. So, it is very urgent to know the salient reasons and crime rates or activities during COVID-19 in India. In this context, the authors are seeking various research articles, research works and journals to find out the related work in India as well as in foreign perspective and we find several works but this type of work we do not find it because this paper tried to highlight the rate of each state and union territory’s criminal activities in India and also try to focus the various probable actions and measures to overcome these crimes.

6 Literature Review Arora et al. (2020) have tried to find out the impact of lockdown on crime rate comparing of 2019 and 2020 in New Delhi and New York metropolitan cities and they found that domestic violence are increased in both metropolitan cities and but in New York city commercial burglary increased little bit whereas in New Delhi due to heavy police force on road this crime is declined. Halford et al. (2020) in their work, they tried to seek the elasticity of crime rate in UK police force area in comparison to 5-year averages, and as a result they get that several crime like shoplifting, theft from vehicle, domestic abuse, burglary dwelling, burglary non-dwelling etc. are declined

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by 11th March 2020 to 23rd March 2020. Miller and Blumstein (2020) have conducted a study and the salient discussion of the study was domestic violence, hate crimes traditional crimes and the various barriers posed by COVID-19. Authors are suggested various advantages of a COVID-19 crime and justice research orientation and they also offer anchoring concepts. Sandberg and Fondevila (2020) in their study they discussed in the early stage of pandemic in Mexico City how crimes are emerged and they highlights how pandemics repurpose validations for customary crimes and suggest a chance for narrative relocation of “criminals”. Uppal (2020) in his study he tried to seek the crime rate of during and post economy recovery and also try to discuss various remedies taken by the government of India to overcome from this crisis. United Nations Office on Drugs and Crime (UNODC, 2020) has conducted a research under the supervision of The Research and Trend Analysis Branch, entitled as the impact of COVID-19 on organized crime. It is found that during COVID-19 it offers both benefits and barriers for OCGs (Opportunity to Strengthen the Governances). The lockdown situation condensed shipping, travel, essentials commodities’ and it disrupt crime rates. But the supervision team also mentioned that long term evaluation is needed for fruitful results. Krishnakumar and Verma (2021) endeavored to know factors behind domestic violence during pandemic through routine activity theory (RAT) method. It is revealed that during COVID-19 domestic violence is mainly accomplished due to consumption alcohol and unemployment. Authors are also suggested that this violence is leading due to change of peoples’ daily routine. Scott and Gross (2021) investigated crime types in Chicago, Baltimore, and Baton cities by comparing crimes before employed stay at home orders and they found that all crimes in mentioned three cities are significantly declined and especially property crime and statutory crime also have remarkably declined. Similar study conducted by Yang et al. (2021) in Chicago city. The key purpose of the study was to find out the spatial and temporal outline of crime during COVID-19 through spatial and temporal crime analysis method. As an outcome authors’ are found that in 2020 significantly such crimes like—theft, battery, burglary, and fraud has changed in compare to 2016, 2017, 2018, & 2019. It was noticeable that spatial and temporal patterns of crime changed significantly during COVID-19 in affected area of Chicago city. Das and Bhowmick (2021) discussed that due to lockdown huge number of unemployment are observed. The prices of essential commodities are in the top level. Stress, anxiety and depression are found on peoples face. Authors are tried to correlate the crime rate during this peril.

7 Nature of Crime Crime has no separate nature or features but in this work the authors are endeavored to spotlight some key criminal activities during COVID-19. We are intending to highlight India’s top most 8 crimes (According to NCRB 2019 Report). There are several lists of crime in NCRB’s record but out of them we are choosing 8 crucial

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crimes which are increased during pandemic. In below we mentioned those crimes in the Table 1, which is as follows-

8 Apparent Aspects of Criminal Activities During Pandemic 8.1

Crime Against Women

Although everything is created equally in nature, it does not always have equal rights in society. Both men and women are not born victims of discrimination in society and in the state. Because people are equal from birth, whenever they start to grow up and become aware of their rights in the society and in the state, then this inequality or division arises. In Indian society, a man enjoys the freedom of the right to happiness as much as a woman does not. The woman is a symbol of weakness and everything she has to endure and sacrifice is instilled in her from an early age. So that if any crime is committed against her, she should bear it all without any complain and not oppose it. They have been the victims of various forms of exploitation and deprivation in the world since ancient times. In India, women have been exploited and oppressed for a variety of reasons since ancient times, and it has not diminished. There is no doubt that the share of crime against women has increased due to the lockdown that has started under the influence of pandemic. But even before that the condition of women was also not good. According to the NCRB report, before the lockdown in India, the 5 states that have witnessed the most violence against women are Uttar Pradesh, Maharashtra, West Bengal, Madhya Pradesh and Rajasthan. Below are some of the reasons why crimes against women were reported before the lockdown in Indian States: • Gender inequality is one of the main reasons why women are the victims of most criminal activities. Because of this gender inequality, women do not always get the same opportunity as men everywhere and are not given that opportunity. • On the other hand, the Indian Constitution says that women should have the same rights as men, (Article -14, right to equality; Article 15, No discrimination) but Indian society today, in the twenty-first century, has not given that right to women. So it can be said that taking advantage of this opportunity, some people with low intelligence are committing crimes against them and crimes against women are on the rise. • Another major reason for crimes against women in Indian society is the lack of education. A large number of girls are not able to study yet. Due to their lack of education, they are not aware of their rights and their abilities. • In addition, due to economic hardship, many girls fall victim to crime in various ways by their families or outside society. They seek refuge or work in order to

Chhattisgarh

Goa

Gujarat

Haryana

Himachal Pradesh Jammu & Kashmir Jharkhand

Karnataka

5

6

7

8

9

10

12

11

Bihar

State/UT Andhra Pradesh Arunachal Pradesh Assam

4

3

2

Sl. No. 1

659.7

375.8

135.3

73.2

288.1

682.5

15.4

288.5

1201.1

344.2

15.1

Population (in lakhs) 523.2

Cyber crimes 1886 (0.0036%) 8 0.00052%) 2231 (0.0064%) 1050 (0.00087%) 175 (0.00060%) 15 (0.00097%) 784 (0.0011%) 564 (0.0019%) 76 (0.0010%) 73 (0.00053%) 1095 (0.0029%) 12020 (0.018%)

Table 1 Crimes in the year of 2019 in India Crime against senior citizen 2430 (0.0046%) 3 (0.00019%) 2 (0%) 251 (0.00020%) 1349 (0.0046%) 40 (0.0025%) 4088 (0.0059%) 384 (0.0013%) 166 (0.0022%) 1 (0%) 9 (0%) 1172 (0.0017%) Crime against children 2524 (0.0048%) 153 (0.010%) 6608 (0.019%) 9320 (0.0077%) 5665 (0.019%) 167 (0.010%) 4685 (0.0068%) 5119 (0.017%) 748 (0.010%) 470 (0.0034%) 1674 (0.0044%) 6305 (0.0095%) Crime against women 17746 (0.033%) 317 (0.020%) 30025 (0.087%) 18587 (0.015%) 7689 (0.026%) 329 (0.021%) 8799 (0.012%) 14683 (0.050%) 1636 (0.022%) 3069 (0.022%) 8760 (0.023%) 13828 (0.020%) Human trafficking 245 (0.00046%) 0 (0%) 201 (0.00058%) 106 (0%) 50 (0.00017%) 38 (0.0024%) 11 (0%) 15 (0%) 11 (0.00015%) 0 (0%) 177 (0.00047%) 32 (0%)

Crime committed by juveniles 820 (0.0015%) 24 (0.0015%) 129 (0.00037%) 1560 (0.0012%) 1647 (0.0057%) 27 (0.0017%) 2025 (0.0029%) 1319 (0.0045%) 181 (0.0024%) 299 (0.0022%) 76 (0.00020%) 453 (0.00068%)

Crime/atrocities against scheduled caste 271 (0.00051%) 0 (0%) 21 (0%) 6544 (0.0054%) 341 (0.0011%) 3 (0%) 1416 (0.0021%) 1086 (0.0037%) 189 (0.0025%) 2 (0%) 651 (0.0017%) 1504 (0.0022%)

(continued)

285.8

42.8

30

12.8

232.5

202.6

10.3

55.1

175.5

106.2

25.2

Value of property stolen (in crores) 130.6

Criminal Activities During COVID-19: Evidence from India 179

Manipur

Meghalaya

Mizoram

Nagaland

Odisha

Punjab

Rajasthan

Sikkim

Tamil Nadu

16

17

18

19

20

21

21

23

24

15

Madhya Pradesh Maharashtra

State/UT Kerala

14

Sl. No. 13

Table 1 (continued)

758.1

6.7

776.0

299.4

437.3

21.6

12.0

32.3

31.1

1225.3

826.1

Population (in lakhs) 351.9

Cyber crimes 307 (0.00087%) 602 (0.00072%) 4967 (0.0040%) 4 (0.0012%) 89 (0.0027%) 8 (0.00066%) 2 (0%) 1485 (0.0033%) 243 (0.00081%) 1762 (0.0022%) 2 (0.00029%) 385 (0.00050%)

Crime against senior citizen 683 (0.0019%) 4184 (0.0050%) 6163 (0.0050%) 10 (0.00032%) 1 (0%) 9 (0.00075%) 16 (0.00074%) 157 (0.00035%) 228 (0.0076%) 437 (0.00056%) 2 (0.00029%) 2509 (0.0033%) Crime against children 4754 (0.013%) 19028 (0.023%) 19592 (0.016%) 148 (0.0047%) 379 (0.011%) 125 (0.010%) 59 (0.0027%) 7012 (0.016%) 2625 (0.0087%) 7385 (0.0095%) 163 (0.024%) 4139 (0.0054%) Crime against women 11462 (0.032%) 27560 (0.033%) 37144 (0.030) 266 (0.0085%) 558 (0.017%) 170 (0.014%) 43 (0.0019%) 23183 (0.053%) 5886 (0.019%) 41550 (0.053%) 125 (0.018%) 5934 (0.0078%) Human trafficking 180 (0.00051%) 73 (0%) 282 (0.00023%) 9 (0.00028%) 22 (0.00068%) 7 (0.00058%) 3 (0.00013%) 147 (0.00033%) 19 (0%) 141 (0.00018%) 0 (0%) 16 (0%)

Crime committed by juveniles 451 (0.0012%) 5522 (0.0066%) 5189 (0.0042%) 2 (0%) 75 (0.0023%) 23 (0.0019%) 6 (0.00027%) 1162 (0.0026%) 246 (0.00082%) 2397 (0.0030%) 4 (0.00059%) 2686 (0.0035%)

Crime/atrocities against scheduled caste 858 (0.0024%) 5300 (0.0064%) 2150 (0.0017%) 0 (0%) 0 (0%) 0 (0%) 0 (0%) 1886 (0.0043%) 166 (0.00055%) 6794 (0.0087%) 4 (0.00059%) 1144 (0.0015%) 172.7

1.5

326.3

120.8

129.7

4.9

17.7

11.1

9.2

977.2

180.2

Value of property stolen (in crores) 67.6

180 S. Parween et al.

Tripura

Uttar Pradesh

Uttarakhand

West Bengal

A&N Islands Chandigarh

D&N Haveli

Daman & Diu Delhi UT

Lakshadweep

Puducherry

26

27

28

29

30

32

33

35

36

13376.1

15.2

0.7

199.4

4.2

5.6

11.8

4.0

971.1

111.8

2259.7

40.0

372.8

Source: NCRB 2019 Report

34

31

Telangana

25

2691 (0.0072%) 20 (0.0005%) 11416 (0.0050%) 100 (0.00089%) 335 (0.00034%) 2 (0.0005%) 23 (0.0019%) 0 (0%) 3 (0.00071%) 115 (0.00057) 4 (0.0057%) 4 (0.00026%) 44546 (0.0033%)

1523 (0.0040%) 19 (0.00047%) 475 (0.0021%) 6 (0%) 245 (0.00025%) 6 (0.0015%) 50 0.0042%) 0 (0%) 2 (0.00047) 1076 (0.0053%) 0 (0%) 0 (0%) 27696 (0.0020%)

4212 (0.011%) 311 (0.0077%) 18943 (0.0083%) 1214 (0.010%) 6286 (0.0064%) 153 (0.038%) 264 (0.22%) 53 (0.0094%) 43 (0.010%) 7783 (0.039%) 26 (0.037%) 50 (0.0032%) 148185 (0.011%)

18394 (0.049%) 1070 (0.026%) 59853 (0.026%) 2541 (0.022%) 30394 (0.031%) 135 (0.033%) 515 (0.043%) 49 (0.0087%) 33 (0.0078) 13395 (0.067%) 38 (0.054%) 95 (0.0062%) 405861 (0.030%)

137 (0.0036%) 1 (0%) 48 (0%) 20 (0.00017%) 172 (0.00017%) 0 (0%) 2 (0.00016%) 0 (0%) 0 (0%) 93 (0.00046%) 0 (0%) 2 (0.00013%) 2260 (0.00016%)

1352 (0.0036%) 39 (0.00097%) 976 (0.00043%) 94 (0.00084%) 503 (0.00051%) 19 (0.0047%) 117 (0.0099%) 150 (0.0026%) 13 (0.0030%) 2783 (0.013%) 0 (0%) 1 (0%) 32235 (0.0024%)

1690 (0.0045%) 0 (0%) 11829 (0.0052%) 84 (0.00075%) 119 (0.00012%) 0 (0%) 1 (0%) 1 (0.00017%) 1 (0.00023%) 76 (0.00038%) 0 (0%) 4 (0.00026%) 45935 (0.0034%) 4719.2

11.9

0.1

865.2

1.2

1.3

7.6

0.9

72.7

17.1

279.9

4.7

128.3

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obtain food, clothing and shelter, and are forced to engage in illegal activities in the wrong way. Another heinous aspect of the oppression of women in Indian society is the Dowry system. If a girl’s parents or family members cannot fulfill the wishes of her daughter’s in-laws, then the girl is forced to endure their oppression in the in-laws’ house. To save a woman from the crime of society, another woman should come up first. But the biggest enemy of a woman in Indian society is another woman. An example is that a woman is abused by another woman in her in-laws’ house i.e. her mother-in-law, sister-in-laws etc. Not only this, if a girl has been divorced, or become widow , raped or has been a victim of various molestations, then she should be empowered by other women, But instead, it is seen that women scold him in various ways, hate her , see her as unholy and make it difficult for him to survive. One of the most important persecutions of Indian women is to prevent them from engaging in various activities which is actually a superstition believe and nothing else, in the name of religion, depriving them of their rights. India is a place where a huge number of religion lives, practices their religious orders. But there are some people who mislead the innocent people (men and women both) and deprive them of various rights and break the path of women empowerment or development. Fearing that if women become powerful, they will reduce the services of men or push them back, women are told not to go for higher education, or to continue their studies or to do a job after marriage in the name of reading different customs by showing fear of different gods. Another major cause of crime against women in India is insecurity. People taking advantage of the fact that women are not properly protected everywhere and as a result women fall victim to crime. In India, if a woman opposes any form of violence against her and files a case against any of her opponents, then if the man is a belonging to a member of a political party, then the man is not punished, but the girl suffers a lot. So the right judgment here is for those who are involved with a strong political party or those who have more wealth. Another reason for the crime against women in India is to get married too early. As a result of getting married too early, the young girl cannot resist the elders of a household but is reprimanded. Another reason for crimes against women is that sometimes a few girls are educated in modern education and do not obey or follow the old rules and regulations which are baseless and a superstition believe. The most needed to end the oppression of women in India is the unity of men and women, a strong stress and another need is the tendency to move forward in harmony and without it, and many women today are not able to survive from crime.

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183

Crime on Children

The earliest of the three stages of human life is childhood. At the childhood level, as they grower up, the child’s mental, physical, external, internal, social and environmental changes can be noticed. But like other countries in India, it is seen that many children who have just grown up in childhood have learned to understand good and bad, those children are being subjected to various crimes for various reasons and many kinds of crimes are being committed by them. According to the NCRB data Report of 2017–19, the states with the highest rate of crimes against children in India are: The following points can be attributed to the ongoing trend of crime against children: • Most of the children who are victims of crime are mainly from economically weak families. In the greed of food for survive they are forced to do whatever the master says. • Another major reason for crime against children in India is where the population is very high and one person has 6–7 children and their economic condition is very poor i.e. they have no family planning and also lack of education which makes them prone to crime. • In the case of India, there is a law that children under the age of 14 will get free education rights and cannot be employed as laborers in any way, but in real society it is seen in many places as forced child labour, or as a last option to serve the family. Directly or indirectly this is also a big crime on the children. • Many times children are subjected to various forms of abuse either due to lack of love from the drunken father or tortured by the step mother after the death of their real mother and become victims of crime due to that abuse. • One of the reasons why children are abused is whether the child’s parents are alive or not. If the child’s mother is a divorcee then it is very difficult for her to raise a child in today’s society, although it is not impossible, but she has to face various problems in the society and the child too. • Most of the children who are victims of crime are very much concerned about their environment because most of the children are victims of crime due to lack of good environment. • Most of the parents who can’t give time to their children especially because they are working and hand them over to various slaves are also victims of crime by those slaves.

8.3

Human Trafficking

One of the major problems in India is human trafficking. This is not just a problem in India but all over the world. At one time people used to buy and sell goods in the market as slaves. Although slavery ended a long time ago, its effects have not gone away. Only the era has changed and the method is different. Human trafficking is

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still present as before. Currently, thousands of children, young and old, children and the elderly are being trafficked from the country and abroad for entertainment, or as slaves, or to sell any part of their body or to satisfy physical needs. The states where a person is being traffics’ the most are: Jharkhand, West Bengal, Telengana, Rajasthan, Maharashtra etc. in the year of 2017. In 2018 the chronological form was— Maharashtra, Assam, Telengana, Andhra Pradesh and West Bengal. And in the year of 2019 Maharashtra, Andhra Pradesh, Assam, Kerala and West Bengal was the most popular human trafficking states in India. Among the various causes of human trafficking in India are some of the important ones: • In India, people are forcibly trafficked abroad in various ways or with some money from their family members for the purpose of making them workers or free life slaves. • Many boys and girls are trafficked for the purpose of earning money by begging on the street or by selling them into the circus or illegal businessman. • From little girls to young girls or married women are kidnapped from various places and sold to earn money by prostitution. • Children who leave home for petty reasons are misled. They are forcibly drugaddicted. As a result they can never get out of this death intoxication and are victims of different crimes and are even forced to commit different crimes. • In addition, most of the boys and girls who are trafficked in India are from poor families. After a few days they calm down and start noticing the other members of the household. So after some months they forget the matter. So the criminals involved in this form of work get more opportunities to commit crimes. • Maximum People who are involved in human trafficking are very powerful and rich people who close various cases with their money. So not everyone cares so much about these things and does not want to keep their peaceful life destroy.

8.4

Crime/Atrocities Against Scheduled Caste

Caste system has existed in India since ancient times. Living in the twenty-first century, we have not been able to abandon the ancient tradition of superstition. Through this ancient caste system the Shudras i.e. the present SCs have been exploited and humiliated by the upper class. Currently, the states in India that have witnessed the highest crime rate, especially in 2017, 2018 and 2019, and are still doing so, are: Rajasthan, Madhya Pradesh, Bihar, Telengana, Uttar Pradesh etc. There are some reasons behind the crime against the schedule caste people are: • First of all, it can be said that these tribes are the backward class. For a long time, the tribes have been the victims of the inferiority, hatred, oppression and injustice of the tribes. • Another major reason for their unjust oppression is their lack of education, meaning that they are rarely educated in modern education. So they are not fully aware of their rights and it is very easy to crime on them at that opportunity.

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• Indian tribes rarely live in urban areas, mainly in rural areas with sparsely populated areas and densely forested areas. And this is why the Schedule caste people are barbaric in the eyes of the so-called civilized people who consider themselves civilized. Taking advantage of the simplicity, many urban people have confiscated their land and property and have been at loggerheads with these tribes for a long time. • Although many tribal women have been raped, murdered, sold by criminals, most of them remain silent because they can be caught in the opposite case. • There are many low caste people who live in urban areas but cannot go to city temples or various schools, or draw water or drink from certain ponds because they are considered contagious. A vivid example is Dr. Bhimrao Ramji Ambedkar (Father of Indian Constitute) who belongs to a schedule caste family and was the maker of Indian Constitution, left Hinduism and adopted another religion just because of the crime against SCs. • Although various special laws have been enacted for the tribes in the constitution, in reality it is rarely seen that they are suffering from the lack of strong laws. • Boys and girls of schedule cast work in the homes of people of civilized race, so they do not try to argue against them or face expulsion.

8.5

Crime Committed by the Juveniles

Crime or criminal activity has become a common thing now-a-days. There are no places where crime does not happen. Crime is present in every society and every state. In fact, Teen ager boys and girls grow up with physical development as well as mental development. Children at this age are very sensitive type. They are very emotional. They don’t understand the good and the bad, the right and the wrong. They like to move in the environment and the mentality that leads them. That is why children of this age are called juveniles. So now the juveniles are being misled and many crimes are being committed against them. This is working as a more dangerous disease for them than drugs. The reasons are: • The main reason for juveniles’ crime is the environment he seems to be in. If the adults follow the wrong and illegal path, then the younger ones will follow the same path. • As children of this age develop physical and mental changes, they often feel oppressed by their subordinate families, so they are often advised from some dishonest persons to work against the family, which leads them to commit crimes and even leave home. • Lack of education is one of the reasons why Juveniles will step on the path of crime. • Another major reason why children of the same age commit crimes or suicide is the behavior of family members, especially parents towards their children. Parents not paying attention to their teenage son and daughters properly, refraining

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whom they are mingling with, they expressing annoying feelings towards boys and girls all the time, reprimanding them all the time, Parents do not show love and encouragement towards their son or daughters. Most of the children in India are committing criminalization due to conflict or diversity among themselves. Also, one of the reasons behind the ruin of young people in the present age is the impact of globalization and the influence of social media. Social media has negative and positive both sides are present. But most of the younger children are more attracted to the negative side of it which makes them become misguided criminals. They even have many types of games online by which they are dying, such as PUBG, Free Fire, Momo etc. In Indian culture, since ancient times, the tendency to take revenge has been ingrained in the blood of Indians. Especially the uneducated, lower middle class people In the event of loss of a family member or for equal rights to ancestral property, they commit various crimes. India is a country where people of many religions live. However, politics about religion or caste is a disgusting thing here. Political leaders, in order to increase their vote bank and for their own interests, make young boys and girls fight in the name of Hindus and Muslims. From an early age, their minds are filled with poison Hindus and Muslims. So that even when they grow up, the poison does not leave their minds. And when they quarrel with as Hindus and Muslims and commit crimes against themselves, they even don’t know why they are fighting. They waste their lives, important times on these things and even destroying themselves by doing crime on them too. But they don’t understand due to the misguidance. Lack of proper application of religion, lack of morality, lack of sense of humanity, etc., and acceptance of superstition, as a result of which they move towards various criminal activities very easily. In India, many parents give birth to illegitimate children before marriage, and many parents abandon the child to save them from social stigma. These children grow up in the hand of beggars or others. As a result in maximum cases the children don’t get a good life and starts loot or stealing to survive.

8.6

Crime Against Senior Citizenship

There are three main stages in the life of all human beings; these are—childhood, young age and adulthood. Childhood and adolescence go well, but getting out of old age is a difficult task. There are people in many states of India who are victims of various types of crime in old age. These states are: Maharashtra, Madhya Pradesh, Gujarat, Karnataka etc. The reasons for discussing the atrocities or criminal activities that take place in adults are as follows:

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• Especially in the urban areas, the situation of the elderly parents is deplorable due to the fact that the children are in the state of education or working in different states or out of country. • There are many families in India where even if one parent has more than one child, one child cannot support his parents due to violence against the siblings which is mainly due to lack of education or narrow mind. • Not only that, many times older adults are forced out of their homes by their children’s desire to stay on the road, living in temples, mosques and Gurudwaras which is a big crime on the senior citizens. • There are many elderly people who have no children. They live alone. Given the opportunities of their age, many treasures are often looted their lifelong savings by robbing their homes. • Many suffer from mental illness due to family disputes. As their value decreases with age, they are also sent to old age homes. • People who work in private companies or ordinary day laborers do not get rice after retirement. • As a result, it becomes difficult to spend old age. Although the old age allowance is currently being paid, but it does not reach to every aged people. Even so many people don’t know the scheme of Govt. • And most importantly, there is no law in the Indian constitution yet that does not allow elderly parents to see or torturing them can lead to severe punishment. That is why the crime on the senior citizens is growing instead of decreasing.

8.7

Cyber Crime

With the advancement of science the era has improved a lot. The impact of globalization is that something discovered in one country is reaching another country in the blink of an eye. Everything has benefited from the advancement of technology. But its ill effects cannot be avoided. Cyber Crime is one of the great examples of the disadvantage of technology. The reasons behind the activities in cyber crime are stated below: • The root cause of cyber crime is the misuse of technology or social media. • Those who do this kind of crime are specially misleading by others or by their friends. Another reason for cybercrime is that not all people know the proper use of technology. And there are many ordinary people in India who can be fooled very easily. • Another vital reason for cybercrime is that many people give their bank accounts and other information to other people easily out of greed without knowing that the person is not true or false at all.

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Value of Property Stolen

According to a state-by-state analysis of the value of things stolen in 2019, Maharashtra, Delhi, Rajasthan, Karnataka, and Uttar Pradesh accounted for 58 percent of the total (in terms of value). While Maharashtra has remained at the top for the past five years, Gujarat has only been among the top five for a few years (Kumar, 2020).

9 Probable Actions and Remedies India is a multicultural country. Here different type of people lives and their different type of rules, rituals or customs are seen. But the state and its Constitution is the supreme and superior before each and every thing. So, if people involve in crime or starts criminal activities and break law and order, then the state punish him or her for the betterment of society. As a huge populated country India whose economy is not so good as per its population. Every day, here, children to elderly person, men to women, teenager girls to boys are becoming the victims of so many criminal activities. They reach in such a helpless, hopeless situation from where it is impossible to overcome or survive as a normal person. As a result, either they become insane or commits suicide. A number of people are fighting with depression. Just because of the crime which is happened to them. Here there can be found 3 types of people—one who are the victims of crime, second, who are involved in crime and the third one is those who helps the criminals. Indian government can punish them by its own superiority. Each and every problem born with a solution. Nothing in the universe is without solution. So, here are some remedies has been suggested to overcome from different type of criminal activities in India. 1. First, the government must intervene in these crimes as soon as possible. At the same time, various rules and regulations have to be made. As long as the lockdown continues, the crime rate will increase, so the government needs to look into this as soon as possible. 2. One of the main reasons for any crime is lack of proper education. And adolescents are more likely to be involved in cybercrime. Therefore, special arrangements should be made for free and compulsory education for those children. It will be possible to reduce the tendency of crime if everyone is brought in the field of proper education. Because conscience is born from education. 3. Punishment is another way to quickly eliminate crime. Because there is a lot of awareness from fear. Specific and severe punishment should be provided for various crimes. At the same time, the government should announce that no government assistance will be given to children involved in crime. 4. People need to be made aware of the opposite side of these crimes. This requires awareness camps. People in rural areas in particular are very unaware of the

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proper use of current technology. Many times, people unknowingly become involved in cyber-crime due to lack of awareness. But the conscious man, before committing any crime, considers it with his own judgment. Financial problems are the key to any crime. In the lockdown, the livelihood of almost everyone except government employees is almost closed. People are getting bored of living a monotonous life. People cannot accept life without income. Despite their reluctance, people are involved in these crimes instead of facing their families. Therefore, in order to overcome this financial problem, it is possible to get at least one government job for as many families as possible, and it will be possible to eradicate the tendency of crime from the minds of the people. We can easily navigate the various sites on the Internet. It is easy to master unnecessary things without the necessary things, then the interest of the people is more expressed in that direction. To overcome this problem, the criminal aspects of social media need to be controlled as much as possible. Intoxicated people become adventurous in any task. The crimes that people can’t do in the normal brain are easily done by the intoxicated. Black marketing, human trafficking—all of these activities must be stopped as soon as possible. At the same time, strict measures should be taken in case of sale of drugs. People are continuing their wedding ceremony even though all activities are closed in the lockdown. With a very small number of people, the government has expressed its opinion in favor of holding the wedding ceremony in accordance with all the COVID-19 rules and regulations. There are some places and races that still demand dowry at weddings. For which the other party has to raise a lot of money in a very short time. For which people resort to dishonest means and get involved in various cyber-crimes. So, we have to stop this betting practice from all places as soon as possible. “I will not take bets, I will not give bets”—this slogan should be propagated and if necessary, punishment should be provided. Politics plays an important role in the present life in any context. At present, various criminal activities are carried out with politics in mind. In particular, various members of the ruling party use politics as a weapon to cover up their crimes. So, some rules have to be made so that no criminal can join politics. As a result, India will go one step further in building a transparent politics and a crime-free country. Although the government has announced a lockdown to prevent the outbreak of the Corona epidemic, this has led to extreme road congestion. As a result, it has become much easier for criminals to commit crimes. To avoid this problem, more CCTV should be provided. Especially in Shushan places, more CCTV should be provided. According to the Indian Constitution, all citizens of India are given equal rights to life. But some people try to keep others under control to prove their superiority. As a result, subordinates are involved in a variety of crimes to oppose those upper-class people in an attempt to preserve their dignity. Therefore, in order to respect the constitution, to remove the attitude of high and low class

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from the minds of the people and to build a crime-free country, the judgment mentioned in the constitution must be implemented in practice. 12. To reduce cybercrime, use a password to secure your network system; never transfer your credit card data to an unsecure website; always use the most up-todate anti-virus software to protect yourself from virus attacks, and so on.

10

Conclusion

Lockdown affects not only how people live, but also how crime is committed. The good news is that as a consequence of this basic variation, certain crimes will decline—in fact, certain localities have already seen a fall in crime. However, there are alarming signals that crimes such as domestic violence and internet fraud are increasing. COVID-19 has a remarkable negative impact on our daily life. In the context of crimes and criminal activities it is also ups and down moment. Some crimes are not able to accomplish due to lockdown situation whereas some crimes are executed spontaneously. When we trying to seek which crimes are enlarged then we can see crime like—domestics violence is increased utmost. According to the Deccan Herald (as cited Joy, 2020) in 4th Jan. 2020, the rate of domestic violence rises 79%. Regarding this NCW (National Commission for Women, India) received 23,722 cases with the increasing percentages of 20%, in compare to 2019 where the number of domestic violence cases are 19,730. Arora et al. (2020) have tried to find out the impact of lockdown on crime rate comparing of 2019 and 2020 in New Delhi and New York metropolitan cities and they found that domestic violence are increased in both metropolitan cities. Although all crimes are not significantly increased but crime like domestic violence, crimes against women, Cybercrimes these are enlarged rapidly. Apparent causes are due to losses of work, especially those who are working as a daily labour. They are undergoing a heavy money crisis. They are not able to control their emotions, as a result anxiety, depression, inferiority are coming in mind. As a reaction they display their emotions to the family members, especially on to their wives. It is necessary to raise awareness in order to avoid certain crimes.

References Arora, M. P., Rao, R., & Agarwal, S. (2020). Crimes in the time of COVID-19. Vantage: Journal of Thematic Analysis, 1(2), 101–112. Das, S., & Bhowmick, S. (2021). Pandemic-induced unemployment in India: Criminal activities on the rise. ORF (Observer Research Foundation). https://www.orfonline.org/expert-speak/ pandemic-induced-unemployment-india-criminal-activities-rise/ Golechha, M. (2020). COVID- 19, India, lockdown and psychological challenges: What next? International Journal of Social Psychiatry, 66(8), 830–832. https://doi.org/10.1177/ 0020764020935922

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Guha, S. (2020). India in the pandemic age. Indian Economic Review, 55, 13–30. https://doi.org/10. 1007/s41775-020-00088-0 Halford, E., Dixon, A., Farrell, G., Malleson, N., & Tilley, N. (2020). Crime and coronavirus: Social distancing, lockdown, and the mobility elasticity of crime. Crime Science, 9(11), 1–12. https://doi.org/10.1186/s40163-020-00121-w Joy, S. (2020, January 4). Domestic violence complaints rose 79% in 2020. Deccan Herald. Retrieved from https://www.deccanherald.com/national/domestic-violence-complaints-rose79-in-2020-934903.html Krishnakumar, A., & Verma, S. (2021). Understanding domestic violence in India during COVID19: A routine activity approach. Asian Journal of Criminology, 16, 19–35. https://doi.org/10. 1007/s11417-020-09340-1 Kumar, C. (2020). Items worth Rs 33k-cr stolen in 5yrs, homes most unsafe. The Times of India. Retrieved from https://m.timesofindia.com/india/items-worth-rs-33k-cr-stolen-in-5yrs-homesmost-unsafe/amp_articleshow/78485519.cms Kumar, S. U., Kumar, D. T., Christopher, B. P., & Doss, C. G. P. (2020). The rise and impact of COVID- 19 in India. Frontiers in Medicine, 7(250). https://doi.org/10.3389/fmed.2020.00250 Miller, J. M., & Blumstein, A. (2020). Crime, justice & the COVID-19 pandemic: Toward a national research agenda. American Journal of Criminal Justice, 45, 515–524. https://doi.org/ 10.1007/s12103-020-09555-z NCRB report, 2019. Crime in India. https://ncrb.gov.in/en/crime-india-2019-0 Sandberg, S., & Fondevila, G. (2020). Corona crimes: How pandemic narratives change criminal landscapes. Theoretical Criminology, 1–21. https://doi.org/10.1177/1362480620981637 Scott, S. M., & Gross, L. J. (2021). COVID-19 and crime: Analysis of crime dynamics amidst social distancing protocols. PLoS ONE, 16(4), 1–14. https://doi.org/10.1371/journal.pone.0249414 The impact of COVID-19 on Organized Crime. (2020). UNITED NATIONS OFFICE ON DRUGS AND CRIME, (UNODC) Vienna, pp. 1–37. Uppal, P. (2020). Covid-19 will lead to increased crime rates in India. International Journal of Research -Granthaalayah, 8(4), 72–78. https://doi.org/10.29121/granthaalayah.v8.i4.2020.9 World Health Organization. (2021, May 19). Novel Coronavirus Disease (COVID- 19) Situation Update Report- 68. Retrieved from https://cdn.who.int/media/docs/default-source/wrindia/ situation-report/india-situation-report-68.pdf?sfvrsn¼8d7c2076_4 Yang, M., Chen, Z., Zhou, M., Liang, X., & Bai, Z. (2021). The impact of COVID-19 on crime: A spatial temporal analysis in Chicago. ISPRS International Journal of Geo-Information, 10(152), 1–20. https://doi.org/10.3390/ijgi10030152

Bibliometric Analysis through the Use of Keywords and Abstract: Research in Law during the Pandemic Sonia Elizabeth Ramos-Medina

1 Introduction In the context of the crisis generated by covid-19, the States promulgated extraordinary measures to limit personal freedom, restrict economic and social activity to levels never experienced in periods of peace. Restrictions on mobility across national borders were maintained for several months. During the state of alarm, most people were confined to their homes except for essential matters. Educational institutions were also closed. Businesses suffered heavy losses especially experienced in small businesses, hotels and restaurants. Much of the world’s population was subjected to forced isolation that led to deterioration in mental health. It is particularly interesting to carry out a qualitative/quantitative comparison of the research published as of 2020 to identify in its content responses or emergency measures and perceived patterns in the management of this multifaceted crisis, since taking this problem as its origin, the research can be focused from fields such as medicine, economics, politics, among others. We emphasize the word multifaceted because the economics and political conditions were changing as the virus spreaded. Efforts to continuously monitor and adapt were necessary to try to control the developing crisis. This is interesting to study because from the basic sciences to the implementation of public policies, researchers, staff and students made an effort to combat the pandemic. The responses associated with the pandemic differ to a large extent to structural factors such as political, social, economic conditions and institutions and other institutions that influence the general environment in which citizens found themselves.

S. E. Ramos-Medina (*) University of Salamanca, Salamanca, Spain e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 N. Mansour, L. M. Bujosa Vadell (eds.), Finance, Law, and the Crisis of COVID-19, Contributions to Management Science, https://doi.org/10.1007/978-3-030-89416-0_12

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On the other hand bibliometrics is an information science that relies on quantitative analysis (Broadus, 1987) of bibliographic material in a specific area. This analysis obtains statistics that allow summarizing and evaluating the most significant results of a data set (Goode et al., 2013; Alfonzo et al., 2014), such as the impact or influence, quality or performance of scientific publications through the use of bibliometric indicators (Moed, 2009). The most widely used indicator is probably the h-index as a measure of individual scientific achievement (Bornmann & Daniel, 2005). The method helps to map the evolution of a specific area of knowledge, identify new developments in research, establish the sources of information and evaluate its performance in terms of productivity, dissemination and impact, trends and financing from a geographical perspective (Wallin, 2005). Examining the content of the publications from a word analysis allows describing research topics and identifying coherence and differences between a set of publications, as well as identifying the characteristics of the research on a particular topic and establishing consensus of concepts by relating individual documents (Small & Griffith, 1974). The approach used in the analysis of the frequencies of words related to publications, in the first instance was used to examine the titles, rapidly expanding its application to the abstracts, addresses, citations of the publications that cite (co-citation) and other related terms with indexing and classification codes (Mullins et al., 1988). The objective of the study is to carry out a bibliometric analysis that explores the words used in the content of research in law, legislation and jurisprudence. The main idea is to show the development of these research areas according to the information obtained from Elsevier’s Scopus for the period 2020–2021, identifying emerging research derived from a period of pandemic. The analysis considers keywords and abstract. In this way, from the set of publications, identify the research concepts on which the researchers have focused their attention. According to Braam et al., (1991) if different researchers work on the same set of research problems and concepts, they would be expected to use the same words to a relatively large degree. If the words as the references of the individual publications converge with the results of the word analysis in general, it means that they also share a focus on the intellectual-based literature. The published scientific literature communicates theories, research and evidence within the field supporting the knowledge for its subsequent implementation (Lewis et al., 2007). For all the above reasons, bibliometric indicators are especially important for researchers (Durieux & Gevenois, 2010). The study aims to empirically evaluate the degree of convergence of the 26 areas that include publications with the combination of keywords: law, legislation and jurisprudence. Our hypothesis holds that the words contained in both keywords and abstracts reflect the research topics, the problem and the concepts included in the publications; They also show whether the research has been able to reflect the extraordinary measures for the preservation of life, health and means of livelihood,

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according to the information obtained for the pandemic period between 2020 and 2021. The results of the bibliometric analysis show that the diversification of the networks of occurrence of keywords made evident a multidisciplinary participation, 26 areas of which research predominates in fields such as medicine and public health. The analysis of the keywords also shows that the origin of these investigations is the “human” with a relevant interpretation of the right to life, to human rights, using jurisprudence to specify the fundamental guarantees. The abstracts analysis confirms the emerging research with tendencies to study the pandemic from different points of view. The number of publications in the analyzed period suggests an acceleration in the publication process, as well as some aspects attributed to open data science. The sections are organized as follows: section II makes a brief review of the literature review; section III describes the methodology used; Section IV shows the results: develops graphical displays of bibliographic data; finally, section V presents the conclusions.

2 Literature Review With application to multiple research fields, bibliometric and scientometric methods are used for a variety of purposes focused on evaluating research. In 1963 Science Citation Index (SCI) was created and developed, which is currently part of Web of Science (WoS) (Wouters, 2006), from then on, large-scale bibliometric research was possible. This tool would have been the only one for citation analysis until 2004, when Scopus and Google Scholar were created. Both WoS and Scopus remain the main sources for citation data. Among the most important characteristics of these databases is that they include all types of publications, authors, institutional affiliations, and bibliographic references of each publication. The availability of bibliographic data has made it easier for researchers to study the growth and dynamics of any discipline. These databases have an interdisciplinary coverage that represents an advantage for the study and comparative analysis of different scientific fields (Archambault et al., 2006). Bibliometrics refers to the use of mathematics and statistics to review scientific publications as a science’s media of communication (Pritchard, 1969; Mingers & Leydersdorff, 2015; Van Raan, 2004). This type of analysis has a long history and is very useful in identifying emerging research areas. So far this year alone, some of the applications of this method consider the presence of potentially predatory journals in the Scopus database. Research results from Marina & Sterligov, (2021) suggest a relationship between the prevalence of these journals and national research evaluation policies. Lyudmyla, (2021) evaluated coverage of accounting topics in 2018 and 2019 by top-ranked and cited journals from popular international publishers. Their results

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indicate that a quartile or a high level of international citations does not determine the complete coverage of accounting topics in a journal. In the field of Social Sciences Sociales Griffin et al., (2021) analyze how authorship credit allocation on published manuscripts might influence factors related to proliferation. For this they use weighted fraction count (WFC). Their findings show a strong positive relationship between collaboration and journal article production, supporting the notion that coauthors may increase proliferation. Caetano et al., (2021) examine the peripheries and margins of the field of biographical research. Their bibliometric analysis shows the multiple faces of this research, suggesting the existence of three profiles determined from sociological publications. Liu et al., (2021) apply bibliometrics to outline the growth patterns and international diffusion of scientific research in artificial intelligence. For this they use high frequency keywords. Within their findings they not only identify the main funders but also show how the various disciplines contribute to the multidisciplinary development of artificial intelligence. In the field of Econophysics, Sharma & Khurana, (2021) analyze the growth and dynamics of the discipline by measuring the number of publications, citations, institutions, among others. They examine the impact of self-citations on dating at five-year intervals. Since the beginning of the pandemic, bibliometrics have begun to be used to analyze the literature on COVID-19. Sachini et al., (2021) make use of bibliometric analysis to explore the evolution of the publication of peer-reviewed articles related to COVI-19 written by Greek researchers. Their results indicate that the sectors affiliated with the higher education and government sectors are those that have made a greater contribution to scientific production. The analysis by Yu et al., (2021) focuses on domain entities and the relationships between them. They use an entity metric strategy and build an entity-entity co-occurrence network.

3 Research Methodology Use the same font you can copy and paste your text here. For the construction of the database we have used the Scopus records, one of the most important sources of citation and abstract data on linked academic literature in a wide variety of disciplines. As a first step for the bibliometric analysis, a general systematic review was carried out in the Scopus database. This search is intended to give a general vision regarding the dimensions of publications on “law”. The first articles to be recorded were published in 1862 by the British Medical Journal. Since then, the volume of articles has had a significant and sustained growth over time. Figure 1 shows the annual publications. Since June 08, 2021, 2.857.447 articles have been published, 40.168 of them are article in press. Among the main research areas are Social Sciences (14%), Medicine (10.7%) and Physics and Astronomy (9.1%).

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240,000 220,000 200,000 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000

72 19 74 19 76 19 78 19 80 19 82 19 84 19 86 19 88 19 90 19 92 19 94 19 96 19 98 20 00 20 02 20 04 20 06 20 08 20 10 20 12 20 14 20 16 20 18 20 20

70

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19

68

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Fig. 1 Annual publications on law. Source: Own elaboration from Scopus databases

However, our intention is to narrow down the search criteria using the association of concepts “law”, “legislation”, and “jurisprudence” as well as the pandemic period (2020 and 2021). In addition, from the collection of published documents only articles were selected (review, book, book chapter, note, editorial, letter, conference paper, short survey, erratum and retracted not included). Once the criteria were defined, we found 2047 documents that match our search, 1700 published in 2020 and 347 in 2021. Table 1 summarizes the analysis design, procedures, and types of results. In these publications the following research areas are included: Medicine, Social Sciences, Nursing, Arts and Humanities, Biochemistry, Genetics and Molecular Biology, Psychology, Environmental Science, Agricultural and Biological Sciences, Multidisciplinary, Business, Management and Accounting, Economics, Econometrics and Finance, Pharmacology, Toxicology and Pharmaceutics, Engineering, Health Professions, Immunology and Microbiology, Computer Science, Neuroscience, Energy, Earth and Planetary Sciences, Veterinary, Chemical Engineering, Chemistry, Decision Sciences, Physics and Astronomy, Materials Science, and Mathematics. After defining the criteria, the content of the list of articles was verified to guarantee the suitability of their inclusion. For the construction of bibliometric networks VOSviewer versión 1.6.16 was used. In order to perform spatial analysis of scientific data, this software developed by the Centre for Science and Technology Studies Leiden University allows to visualize networks of co-occurrence of important terms taken from the literature (Van Eck & Waltman, 2017). In order to carry out a conceptual construction related to the scientific production of articles related to research on key concepts, we examine the co-occurrence based

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Table 1 Research design for bibliometric analysis Delimitation criteria Database: Scopus

Search terms: “Law”, “legislation”, and “jurisprudence”. Document type: Articles

Information 1) abstract and keywords: Abstract, author keywords, and Index keywords. 2) other Information: Include References.

Data analysis Excel: Basic statistics data VOSviewer: Type of analysis: Co-occurrence.

Results Descriptive Analysis Create a map based on bibliographic data: Keyword Co-occurrence.

Iramuteq Type of analysis: Lexical tables / Reinert’s method HJ-Biplot Type of analysis: Representación de variables y vectores Unit of analysis: All keywords, author keywords, index keywords; abstract.

Create a map based on text data: Term occurrence map. Cluster’s and total link strength.

Create a map based on tablas léxicas.

on keywords and the title and summary of the publications as of 2020. To do this we identify the most relevant and frequent concepts, the proximity or distance between them (Ding et al., 2001; Zupic & Čater, 2015). The second phase of our analysis process involves creating a data matrix obtained from the original data from the first phase. The matrix, called the lexical table, will be composed of the frequencies of the words of the textual content of the abstracts of the articles published as of 2020. This process is important because it allows lemmatization, that is, the elimination of words that lack meaning by themselves as articles, prepositions and determiners. The lexical table is organized in a matrix (X) of I x J data where the I rows correspond to the 1853 abstracts (available) of the published articles and the J columns correspond to 206 active forms (words). In order to specify the results obtained in the first phase, a simple classification analysis is performed on text segments of the abstracts, through the Reinert method. This time only the active forms are selected. For this, the Iramuteq software version 0.7 alpha was used. In the last phase, according to the classification obtained in the previous step, the words associated with the problem, concepts or extraordinary measures referring to the pandemic are selected to graphically represent the areas that have originated more investigations and in what sense. For this we use the HJ-Biplot (Galindo, 1986) as a tool for inspection of the bibliometric data matrix. This is defined as a low-dimensional graph with minimal loss of information from a given matrix. The technique enables published articles and research topics to be represented in a scatter plot to explore the main characteristics of the data set. The software used is MultBiplotMac version 20.109.0.0.

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4 Interpretation of the Findings In order to establish an overview based on the presence of words and their frequencies, we will examine the co-occurrence of the keywords and abstract of the published articles. The co-occurrence of words is an indicator of the structure of the research topics, the methodology used and shows the valid links between published articles.

4.1

Keywords Co-Occurrence Network and Clustering

A map of co-occurrence of terms was created based on keywords and the title andd summary of all publications on law, legislation, and jurisprudence from 2020. Figure 2 shows the results. In the interpretation of Fig. 2 the sizes of the circles reveal the frequency of the concepts used, while the colors indicate a relationship between terms creating clusters, indicating in turn the connections with other clusters. In the center of the

Fig. 2 Co-occurrence of terms based on keywords. Note: Counting method: full counting. Minimum number of occurrences of a keyword: 20. Of the 10,255 keywords, 320 meet the threshold. For each of the 320 keywords, the total strength of the co-occurrence links with other were calculated. The keywords with the greatest total link strength were selected (311). Method: association strength. Weights: Occurrences

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figure the word “human” is represented. The first findings suggest that there is a high degree of convergence between the articles published in 26 research areas and the relevant interpretation of the right to life by human rights, using the jurisprudence of human rights bodies to specify the fundamental guarantees. To mention some publications that are considered in this study and that focus their research on human rights: Some of them refer to the disparities between human rights as law and human rights as a social movement (Levitt & Merry, 2009). Others analyze the right to life under human rights treaties and its influence on the use of force in armed conflicts (Doswald-Beck, 2006). Some other examines the alleged conflict of WTO law with international human rights law using a prominent example of such a conflict in patents and access to medicines (Hestermeyer, 2007). Some others focus on the human in a global jurisdiction, this Global law presents a diverse, unsettled and sometimes conflicted legal category (Walker, 2015). The fifth most used term refers to “female”, which means that a large number publications examine global ideas about women’s rights. There are even publications that study the leadership of women associated with a reduction in deaths during the pandemic (Sergent & Stajkovic, 2020). Although the cluster formation will be examined later, we are interested in pointing out that Fig. 2 has identified 5 clusters. The first one (red) -97 items- is made up of terms related to the bioethics, psychology, human experiments, practice guidelines and legal aspects. The second (green) -69 items- encompasses adverse events, including traffic accidents and risk factors such as the use of firearms or the use of drugs, alcohol. The third one (blue) -60 items-that integrates the terms related to commercial phenomena and consumer behavior. Cluster 4 (yellow) -56 itemsincludes those with reference to public policy, procedures and economics. Cluster 5 (purple) -36 items- is made up of all the terms related to the pandemic: Covid-19, coronavirus infection, betacoronavirus, quarantine, biomedical research and confidentially. Although this last cluster is the smallest, it is the group that represents emerging research in the area.

4.2

Abstract: Co-occurrence Network and Clustering

The review of the abstracts shows two clearly segmented clusters connected with a third one that includes the terms related to Covid. The results are shown in Fig. 3. The first cluster (red) -145 items- is made up of concepts related to types of study, levels and research perspective: paper, article, legislation, jurisprudence, principle, concept, relation, rule. The second cluster (Green) -134 items- you could call it “from the data”, it groups data, years, impact, changes, population, surveys. While the third Cluster (Blue) combines legislation and data to create a conjunctural investigation composed of 9 items: Covid, clinician, doctor, emergency, healthcare professionals, infection, pandemic, SARS and spread.

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Fig. 3 Co-occurrence of terms based on abstract. Note: Counting method: binary counting. Minimum number of occurrences of a term: 20. Of the 36.688 terms, 480 meet the threshold. For each of the 480 terms, a relevance score was calculated. Based on this score, the most relevant terms were selected. The default choice is to select the 60% most relevant terms (288). Method: association strength. Weights: Occurrences

4.3

Textual Analysis

In the previous figure we have tried to identify or classify the content of the texts in clusters. The objective is to confirm this result with a refinement of the data matrix, that is, with the selection of active forms. For this, the Reinert method was used. The results are shown in Fig. 4. The results show the information classified into three clusters. Red includes terms related to law: legal, law, court, article. Most of the concepts covered in blue refer to data measurement: rate, age, increase, estimate, regression. This cluster also includes terms related to smoking, alcohol and drug use, this is mainly due to the use of statistics as parameters for increasing or decreasing cases. Green contains all the terms related to health including covid. Figure 4 also shows that there is a close relationship between green and red, two distinct clusters that derive from the same branch.

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Fig. 4 Dendrogram of active forms

4.4

HJ-Biplot

To explore the set of topics included in the emerging cluster related to the pandemic, we used an HJ-Biplot. Figure 5 shows the factorial graph of plane 1–2, where the accumulated inertia amounts to 66% of the variability of the data. The marks (+) indicate the position of the published articles. The distances between these are inversely related to the similarity of the contents of the publications; the closest ones are similar. There is a similarity in the content of the articles represented in the same brand, in the same way they find similarity with the publications represented in the nearby brands. The formation of the angles of the vectors (specific topics), indicate the degree of relationship between the articles and their dimension. The projections of the topics of interest on the vector that represents each scope, that is, the presence of those topics in the content of the publications. The angles between the vectors indicate the degree of association between the variables: the obtuse ones indicate that they are not related. The length of the vectors indicates the discriminating power of the variables. Provided that the information is correctly represented in the graph, the shorter vectors reveal a greater discriminating power. This is the case of the words that we find in the origin “protection”, “impact”, “regulatory”, “professional”, “medicine”, and “provide”, about which we will discuss below. Dominance over the executive, legal uncertainty, and lack of parliamentary control were global concerns that led to the search for legislation that addresses

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Fig. 5 Resulting factorial representation of the HJ-Biplot, plane 1–2

the pandemic in a framework based on equality and transparency. Among the most controversial issues (“regulatory”) we have is the question of who and how measures can be taken to restrict the fundamental rights of citizens. Some of the problems inherent in the legislation introduced in emergency lead to legal deficiencies, delegation of discretionary powers and lack of parliamentary oversight both in publication and in application. Other laws lack a constitutional basis, the introduction of permanent changes could affect common law and governance even in post-pandemic times. The concerns point to a use and limits dictated by governments and not by constitutions; This made it possible to limit fundamental rights based solely on executive orders. Legislative reforms could be evaluated by the adequacy of their responses to the pandemic, with rapid action that provides governments with the ability to introduce economic, labor, and tax measures; these responses could be measured with success or failure indicators on the number of infections, pressure on intensive care units, mortality and fatality rates, length of confinement, unemployment levels, debt levels, GDP estimates, number of people vaccinated. A bad response by governments could result in a negative evaluation from their citizens, while a positive one could strengthen the regime. Inaccurate information,

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lack of transparency and accountability can undermine public trust, and this is essential for governance. The reality indicates that the responses adopted by the pandemic require legal and institutional provisions, which for now are not solid. The reforms could take into account the experience of other countries adopting the conditions, culture, institutions to local contexts. This crisis that we are currently suffering, occurs within a phenomenon exogenous to the economic system, and has effects rooted in the previously established productive apparatus (Ramos-Medina & Piedra, 2021). The pandemic has revealed social and structural weaknesses that have affected those who were already in a vulnerable position, women, children, the elderly, refugees, among others. However, in the transition from these crisis stages it may not be the appropriate setting to define the best practices, public policies or legal frameworks for the response to the health emergency. But there are lessons that will help to reform the law, the legal systems built on the values of the rule of law and human rights. Political commitments could also rebuild citizens’ trust in governance and its institutions. The scenario has also created opportunities to consolidate the protection of rights. We have been able to confirm the hypothesis raised: the emerging research has been able to reflect the extraordinary measures adopted during the pandemic. As we have been able to verify empirically, the degree of convergence of the 26 analyzed areas confirms that they share a human-centered intellectual base. Research approaches also agree that, despite being a socioeconomic crisis, the human rights-based approach prevails as these violations undermine public health. On the other hand, the most shocking public health crisis in recent times confirms the need to generate reliable knowledge. The overview of the publications shows the rapid emergence of research on extraordinary measures for the preservation of life and health. Despite analyzing a short period, consider 2020 as the peak period of the pandemic and that we are in the middle of 2021, the number of publications is significant. Take into account that publishing times in a traditional process can take years. Therefore, it is clear that the publication processes have been accelerated so that the advances/research results as well as the necessary tools to stop the spread of the virus were available to other researchers. It is important to point out that the communication of the advances in the investigations was vital for science in search of a “treatment”. In the field such as Medicine, the publication and communication of the results of clinical trials were crucial for collaboration between researchers, achieving significant advances from the first publication on the genome sequence of SARS-CoV-2, the causative agent of the coronavirus disease “Covid-19”. In a sense, progress in understanding and responding to the pandemic can be attributed to open science. Despite the importance of open science with success stories in medical and health research, not all fields have been able to adopt it. Regarding the terms “provide” and “protection” that our study brings up, we must point out that the states are not only obliged to prevent and control epidemics, they also take on the role of provider as this is the one who administers and manages the

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vaccination plan. It is not possible for individuals to buy their dose in a pharmacy, it is the state that buys and establishes the criteria to be vaccinated. Herd immunity, administering a large number of vials in a short period, is the strategy to prevent the spread of the virus. The possibility of mass immunity will allow a return to the “new normalcy”. Each state has been busy purchasing vaccines for its population, triggering unequal distribution and access to vaccines. A significant percentage of vaccine production has been delivered to a small number of countries. Regarding the term “impact”, a negative long-term economic impact is expected due to the uneven distribution of vaccines worldwide, which could lead to vaccine-resistant strains. Some of the vaccination plans at the national level have been criticized for the opaque distribution of doses, with privileged access that have led to resignations in some public administration positions and investigations for abuse of power. It is also criticized that the distribution criteria privilege economic policy options before prioritizing the commitment to public health. Vaccination plans could also expose structural weaknesses such as lack of access to health care for vulnerable minorities.

5 Conclusions The pandemic has highlighted the fragility not only of health systems, but also in other areas such as socioeconomic inequalities, geopolitical tensions, governance crisis, among others. Although here we have been able to identify research concepts in individual publications that converge with others from different fields, it is an emerging research with several edges that have not yet been studied. We have identified 26 research areas, of which research predominates in the areas of medicine and public health. With the number of publications on the subject, we have been able to verify the rapid emergence of these lines of research, mainly extraordinary measures for the preservation of life and health. It is also clear that publication times have been sped up, making progress/research results available. This has also pointed out the importance of open data. For now, it has been possible to confirm the increase in articles related to geopolitical tensions and their impact on the acquisition of vaccines. We have also found references to ethical, legal, and practical challenges or empirical bioethics, mainly towards the principle of patient autonomy (health ethics), that is, free people who should not encounter interference or inadequate understanding that prevents them from taking a choice. The legal doctrine of informed consent upholds this principle, requiring physicians to inform patients of all relevant aspects and to respect patient decisions. This is important because in some countries the possibility has been opened for the citizen to choose between vaccine options. Another implication leads to privacy limitations (data use and personal data sharing) inherent in applications for tracking positive covid cases, close contacts

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and/or ensuring compliance with confinement. The introduction of a vaccination passport for mobility in the European Union is now being considered. Both cases face criticism for discrimination, exclusion and even surveillance. It is important to note that the results are dynamic, and could be modified with the emergence of new related topics or with variables increasing their position on a daily basis. Limitations The use of the Scopus database is widely recognized among the scientific community; however, it presents some limitations regarding the representativeness of the research universe. Acknowledgements The author appreciates the invaluable comments of M. A. Piedra Durán.

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Law and Economics of Evolution of Banking Regulation in India Mononita Kundu Das

and Rituparna Das

1 Introduction In a discourse on evolution of banking law one needs to know which is the parent of banking law, i.e., which country has the first formal bank. Ireland is believed to have seen the first organized modern bank. The stages of evolution of banking evolve in precede evolution of banking law. Since India was a British colony, it is quite obvious that the Irish banking tradition must have permeated the British India and the then presidency banks (now the State Bank of India) and the then Reserve Bank of India (now the apex bank). India’s banking jurisprudence continues to be shaped by the Bretton Woods Agreement. The British India was a member to have accepted such agreement. Post-independence India continues to be a member of IMF. In its consultations with the central government of India on its economic policies pursuant to article IV of the Articles of Agreement of the IMF, the Fund intensifies its examination of the trend and volume of external indebtedness of private and public borrowers in India and comment, as appropriate, in its report to the Executive Board from the viewpoint of the contribution of such borrowings to the economic stability of the borrower. The IMF in approving India’s economic adjustment program takes into account the effect such program will have on jobs, investment, real per capita income, the gap in wealth between the rich and poor, and social programs such as health, housing, and education, in order to seek to minimize the adverse impact of those adjustment programs on basic human needs. The IMF offers liquidity to meet India’s claims on itself or to meet threats to the systematic stability of the international financial

M. K. Das Amity University, Kolkata, WB, India R. Das (*) Sharda University, Gautam Buddha Nagar, India © The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 N. Mansour, L. M. Bujosa Vadell (eds.), Finance, Law, and the Crisis of COVID-19, Contributions to Management Science, https://doi.org/10.1007/978-3-030-89416-0_13

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system. In a way, the laws relating operation and regulation of the banks in India evolve in order to cater to the needs of democracy and welfare in compatibility with the understanding between India and the IMF. India is a common law country. On this land a law originates out of a need initially unfelt but later culminating in a crisis. Law means here certain codes of conduct or set of rules imposed by an institution like legislature, judiciary, regulator or self-governance entity. Such rules are to be followed by the masses. From the viewpoints of rationality and efficiency, violations of such rules are costly in terms of penalties as private costs and negative externalities as social costs. Violations are preferred if private benefits out of a violation exceed the social benefits and vice versa. Such violations, where private benefits are more than social benefits, are likely to recur. As a recourse to such recurrence amendment of that law is likely. The document containing plan and strategy to manage a crisis is called a policy. That policy when legislated or enacted becomes enforceable as law.

2 Literature Review Rungta (1962) hints at duplication of English laws and enquires into the weaknesses and failures of the laws relating to incorporation of banks in British India. The history of evolution of banking law is embedded in three broad stages 195167, 1967-81 and 1981-97 respectively in RBI (2005a), RBI (2005b) and RBI (2013). These works have discussed inter alia the history of amendments to the Reserve Bank of India Act and Banking Companies Act which has later become Banking Regulation Act. Mukherjee (1992) discusses at length the play of exploitative colonial interests shaping the history of formation of the RBI. Investigative research and discussions like Banerjee et al. (2004), regarding word wide inhibiting impact of government monopoly in the banking industry, motivate the legislators toward legalization of private ownership and competition in the banking industry with a view to enhancing operational efficiency of the banks and catering to unlent and unbanked areas. Moser-Boehm (2006) enquires into the myriads of formal and informal contacts and communications between the central banks and governments to understand how much the governments influence evolution of central banking laws. Prakash (2008) focuses on the role of capital regulation in the evolution of risk based regulatory framework. Posner (2009) attributes the subprime crisis to market failures that failed the regulatory laws despite Federal Reserve Bank is known for its autonomy from the government. The historical account in Goodhart (2010) known to participate actively in discourses on central bank autonomy allude to banking crises demonstrate torquing rule and role of central banking through the stages of 1840s to 1914, 1930s to 1960s

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and 1980s to 2007 around triplet objectives of price stability, financial stability and state finance. Eken et al. (2013) probe into the connection of cost of regulation in terms of capital adequacy and deposit insurance and the extent of tightness of the regulatory knot with respect to Basel II regulations. Mint (2013) points to wisdom of pre-independence bankers like Vithaldas Thackersey as to the need of rigorous appraisal of proposals for loans and investments, which later became enforceable by RBI in line with Basel Committee. A succinct structure of the history of chronological evolution of banking law is given in Byjus (2021). The historicity of non-performing assets that can prompt banking crisis in India tracing back to the pre-independence period absolutely devoid of any banking regulation is portrayed in Agarwal (2018). A similar indication is available in Srikanth and Prabhu (2021). The relationship between the central government and the central bank contributes to the rules applied by the central bank to the banking industry. The bitter shades of such relationship are reflected in Nair (2020).

3 Research Methodology This is a work based on descriptive research for the purpose exploring a cause-effect relation. The effect is obviously a law/rule/guideline/direction/order relating to operation of banking business. The major part is the description of the state of affairs in the banking industry during different stages of evolution. This can be termed Ex post facto research useful to doctrinaire studies in law, social science and business. We find which law is enacted, amended or repealed and amended and then connect that to the comments and reviews from scholars and institutions. For the purpose of detecting undiscovered political economic causes or factors that might have contributed to the past incidents or may lead to the next step of law making. At some point of time, we need to take stand on either side of rationality and efficiency on the one hand (growth aspect) and on the other hand social justice and equity (development aspect).

4 Pre-independence Era The British Raj in India was governed by the Regulating Act (1773), Government of India Act (1784-1858). In 1927 there were 26 banks in India out of which only seven banks were Indian. The concept of State Bank of India as a shareholder’s bank originated then (Mukherjee, 1992).

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In 1913 there were 451 banks. In 1913-14 there was a banking crisis triggered by bad investments by banks in the companies where the Directors of the banks had interests. People’s Bank of India, Indian Specie Bank and Bank of Bombay are notable amongst them. (Mint, 2013). From Byju (2021) we came to know the following chronology of establishment of the major banks: • • • • • • • • • • • •

Bank of Hindustan (1770) The General Bank of India (1786) Oudh Commercial Bank (1881) Bank of Bengal (1809) Bank of Bombay (1840) Bank of Madras (1843) Allahabad Bank (1865) Punjab National Bank (1894) Bank of India (1906) Central Bank of India (1911) Canara Bank (1906) Bank of Baroda (1908)

The Bank of Hindustan, the first bank owned by foreigners, was set up as a private bank by Alexander and Company introduced fiat money for the first time on India land. This bank used to maintain reserves of gold and silver coins in order to save itself from periodic bank runs. Based on these reserves it issued bank notes or fiat money in absence of any central regulatory body. This bank closed down business because of lack of profitability. The General Bank was set up by the employees of the East India Company in order to serve the need of that company for loan from time to time. However, this Bank also failed because of lack of profitability. It is clearly understood that there was no law or regulation before 1930s that could compel the private banks to protect the interests of the depositors. We can divide the pre-independence banks as public banks and private banks. A public bank means one that had East India Company as one of the owners, e.g., the Bank of Bengal. The practice of deposit banking started with the Bank of Bengal. Till 1850, banking charter was available from Indian local government, not directly from the East India Company in Great Britain (Rungta, 1962). At the end of 1850 Oriental Bank Corporation and in 1851 three Presidency Banks of Bombay, Calcutta and Madras got charters. These banks were however governed by the Presidency Banks Act of 1876. Though banking charter was granted to these banks, there was no legal requirement for incorporation nor was there any insolvency law in the case a bank was unable to pay the creditors or depositors. In such a case a smart creditor used to sue a wealthy shareholder. There was no law to protect the shareholders. There was no law regulating the banks till 1949. The RBI was born in 1935 was a private shareholders’ bank and an owner of the State Bank of India born of the presidency banks. Though it was owned by shareholders, but shareholders did not

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have authority to influence management decisions. It got the position of regulator in 1949 under the Banking Regulation Act. Under the Paper Currency Act the Government of India had the sole power to issue currency. The Gold Standard and the RBI Bill of 1927 have an objective of transferring the above power to the RBI. Amendments of the Indian Coinage Act, 1870 and the Indian Paper Currency Act, 1882 allowed the Government to retain the power to mint metal coins. The RBI Bill of 1933 considered independence of a central bank in matter of assisting and managing the businesses of the Central Government. It was set up as a private shareholders’ bank but post-independence the Central Government became the only shareholder. Post-independence, since July 1948, the RBI stopped operating in Pakistan. One problem with the RBI Bill was that except under Section 42(2) and few mild provisions of the Companies Act 1913, the banks were not supposed to obey the RBI. The amendment of that Act in 1936 added a sperate chapter for the banks. The amendment could cater only a little to the need for a regulatory law. This failure led to the birth of the Banking Regulation Act. A pari passu development during the start of the twentieth century was evolution of the cooperative banking system. The Royal Commission on Indian Agriculture attached importance to rural co-operation in 1928. Registration of some cooperative societies under the Companies Act led to passage of Co-operative Societies Act of 1904. This was the outcome of a process that evolved gradually through the Britishers’ plan to free up the agricultural borrowers from malicious schemes of the mahajans (individual private lenders) through legislation of Deccan Agricultural Debtors’ Relief Act of 1879, the Usurious Loans Act 1918 and the rule of Damdupat.

5 Post-independence Period Till 1949 On the recommendations of John Hilton Young Commission 1926—called Royal Commission on Indian Currency and Finance, the RBI was established on April 1, 1935 under RBI Act 1934 as a shareholders’ bank. It was nationalised with effect from Jan 01, I 949 under Reserve Bank of India (Transfer of Public Ownership) Act 1948 with then paid-up capital Rs. 5 crores. and assumed the formal role of the apex bank, though it had been performing that role since the birth. The RBI got the monopoly in India to issue currency notes (called bank notes) with denominations of above one rupee under signatures of Governor. One-rupee notes or coins are issued by the Government of India. Following is the chronological description of the activities of RBI after its birth. On first April 1935, RBI started operations under Sir Osborne Smith, the first Governor of the Bank. Since 5 Jul 1935, the scheduled banks were required to maintain the Cash Reserve Ratio, i.e., hold cash balances with the RBI equivalent to 5% of their demand liabilities and 2% of their time liabilities. A scheduled bank means a relatively safer than non-scheduled banks and is mentioned in the second schedule of the RBI Act, 1934.

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On 14 Oct 1935, RBI’s London office was set up that continued till September 301,963. On 15 January 1937 Indian Companies (Amendment) Act, 1936 created a separate chapter exclusively to Banks. In Jan 1938 the RBI first issued a note of 5 rupees. On 21 June 1938 failure of the Travancore National and Quilon Bank, the largest bank in the Travancore region, underlined the need for comprehensive banking reform and legislation. third September 1939 saw introduction of Exchange Controls in India under Defence of India Rules. On 11 March 1940 RBI Accounting Year changed from Jan-Dec to July-June. In 1940 one rupee note got the status of official fiat money. 1944 witnessed consolidation of laws relating to Government securities and to the management of Public Debt by the RBI on the basis of the Public Debt Act, 1944. On 26 May 1945, Defence of India Rules invoked to authorise the RBI to collect information from banks in respect of advances in order to check advances against bullion for speculation. In 1946 the Ordinances for Bank Supervision empowered the RBI to inspect banks, as well as authorise the licensing of bank branches. On 30 June 1948 RBI ceased to function as the Central Bank of Pakistan. On 1 January 1949 the RBI was nationalized. On 16 March 1949 the Banking Companies Act, 1949 became the statutory basis of bank supervision and regulation in India; the Statutory Liquidity Ratio (SLR) was introduced and the Banking Companies Act was renamed the Banking Regulation Act. During the periods between first and second world wars there was mushroom growth of the privately owned banks in terms of deposit collections and loans without due diligence through fast expanding number of their branches. The source of motivation was permission for limited liability in the Indian law. Defaults of the most of the loans led to bankruptcy of those banks. There was no regulation governing raising deposits from public, lending and proliferating numbers of branches. After the second world war, 365 banks failed and 207 went out of business. These banks were located more in West Bengal and Less in Punjab. Nath Bank and Exchange Bank were the most known names. Some of the failing banks were amalgamated and many were liquidated. West Bengal’s failed four banks—Hooghly Bank, Comilla Banking Corporation, Comilla Union Bank and Bengal Central Bank were amalgamated into United Bank of India. The RBI was persuading the central government for enactment of a law that could give it the power to regulate. Such legislation was not possible till 1949 due to partition. The Banking Companies Act came into being in 1949 and subsequently it is amended to the Banking Regulations Act 1966. The Subsection 45JA of the Chapter IIIB in the RBI Act empowers the RBI to give directions on the domains including monetary policy ratios. CRR and SLR are the monetary policy ratios. The 1960s saw the RBI impounding the bank deposits in

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the name of cash reserve ratio (CRR) and statutory liquidity ratio (SLR) and forcing the banks to buy cheap government securities and to lending to the prescribed categories of borrowers at subsidized rates. The banks were compelled to invest in the government securities in order for supplying cheap funds to meet the budgetary deficits caused in a large way by unfavourable agricultural production, rise in defence expenditure and aid to neighbouring countries. There was no restriction on the central government to control fiscal deficit till the passage of the fiscal responsibility bill.

6 From 1949 to 1970 During this period the most noteworthy event is conversion of the Imperial Bank of India, the merged entity of three presidency banks, to the State Bank of India in 1955. The imperial bank was deemed to be biased in favour of European businesses relative to the Indian businesses. This conversion was debated between two categories of perspectives—socio political and economic. The socio-political category argued against the conversion in order the protect the business of the Imperial Bank in Pakistan. The economic perspective argued in favour of the conversion in order to fix the control of the RBI on the State Bank of India given the fact that after the independence the RBI ceased to operate in Pakistan. The economic perspective won because it was connected to regulatory activities performed by the Imperial Bank since its inception, as if it was the apex bank. The government treasuries have been remaining throughout with the Imperial Bank and continue to be with its new avatar the State Bank of India. A remarkable event toward the end of 1960s was nationalization drive of the central government in the banking industry. In pursuit of socialistic philosophy profit making was considered to be a bad practice. Some of the banks established before independence like Allahabad Bank (merged with Indian Bank in April 2020), Punjab National Bank, Bank of India, Central Bank of India, Canara Bank and Bank of Baroda and some other banks totalling in number to twenty. Since then, till 1991, it was a period of financial repression. Though these banks were incorporated as public limited companies and listed in the stock exchanges, profit making was a secondary priority after the primary priorities of social and development goals like lending at less than profitable rates to priority areas, economically weaker borrowers and agriculture. The markets of the banking products were of monopoly character because pricing of loans and deposits happened not on competitive basis but on certain non-economic considerations kept in view by the central government. As a result, the asset growth of the banks was not proportionate with the liability growth. Requesting the central government for infusion of equity capital became a culture of the banks. Banerjee et al. (2004) observed that the negative correlation between public ownership of banks and economic growth is an outcome of research on many countries, not because private return on lending is less than social return but because

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lending to private sector was not allowed to take off thanks to the societal priorities for lending chalked by the central government. In line with the social and development goals of the banking industry, as was decided by the central government regional rural banks were founded. The apex agricultural bank NABARD was founded to help growth of agriculture.

7 From 1970–1990 This stage is characterised by dilution of standards of appraisal of borrowing proposals applying little or no due diligence. Lending to private sector started at the beginning of this period. This period witnessed swelling volumes of NPAs across the economy. The recourse of this problem was located in the recommendation of Narasimham Committee II. SARFASI Act 2002 was a tool to implement above recommendations. The Narasimham Committee II reflects Basel Accord of 1988, though India was not then member of Basel Committee. The Basel Committee was formed in mid 1970s after the West Germany banking crisis and started working with the member countries then only developed nations.

8 From 1990 onward This stage saw implementation of the recommendations of the Narasimham Committees I and II and also implementation of Basel II and III guidelines through the RBI circulars. These guidelines and circulars are as sacred as law and to be obeyed by the banks. Violation of the same calls for penalty by the RBI to the bank and penalty by the bank to the concerned employees and the resulting court cases like (i) H.K. Shenoy vs Syndicate Bank and Others on 4 August, 2017 and (ii) DLF Limited vs Punjab National Bank on 27 May, 2011. Many of these penalties are in the form of criminal charges like one in the case of Kishore Deshpande vs The State of Maharashtra and Others on 28 June, 2019. Non-criminal violations are termed as deficiencies in regulatory compliance like the one violation by the ICICI Bank detected by the RBI on 3 May 2021 in matter of investment classification (The Hindu, 2021). This period witnessed risk based regulatory guidelines to manage separately credit risk, market risk, operational risk, liquidity risk, foreign exchange risk, modelling risk, strategic risk, reputational risk etc. pari passu with maintaining a strong capital adequacy ratio and liquidity buffer. in compliance with Basel II and Basel III. This period saw increasing acceptance of crypto currency. So far, all banks operate with fiat money. All the banking laws are enacted keeping in view the fiat currency which has a creator central government and regulator central bank. Crypto currency is yet to get such a place.

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9 Discussion The concept of central bank autonomy is not in vogue in India. The duty of central bank is to take care of financial stability and price stability, and check monopoly inefficiencies. For these purposes it needs autonomy in managing liquidity and framing monetary and credit policies but the RBI is subservient to the central government. The Governor of the RBI is appointed by the central government. The central government interferes in the work of the RBI by force of the following sections of Banking Regulation Act. • Section 35 AA—Power of Central Government to authorize RBI for issuing directions to banking companies to initiate insolvency resolution process. • Section 36AE—Power of Central Government to acquire undertakings of banking companies in certain cases. • Section 36AF—Power of the Central Government to make scheme. • Section 45—Power of RBI to apply to Central Government for suspension of business by a banking company and to prepare scheme of reconstitution or amalgamation. There is scope to think that there is supply side bottlenecks if regulation is considered to be a saleable service because production cost is prohibitive owing to numerous bargaining with stakeholders and interest groups. On the global front central bank’s failure in the forms of Great Depression and collapse of Bretton Wood Agreement led to subordination of the central banks to the governments and conduct of monetary and credit policies by the bureaucrats and educated ministers. The public sector banks in India are also subservient to the central government. Their chairman-managing-directors are appointed by the central government, not promoted from within based on employee performance. The current reluctance of the PSBs to lend to businesses was a global phenomenon post Great Depression. Appointment of Governor not having knowledge of economics and transfer of the RBI’s reserves to the central government are examples of the domination of the central government on the RBI.

10

Conclusion

This work portrays evolution of the banking laws in India, that oscillate around the issues of banking crisis and central bank’s autonomy, from the contrasting perspectives of growth and equity. Against the backdrop of bank failures before independence, nationwide non-performing asset problem and working of the Basel Committee, this work demonstrated that laws originate out of errant behaviours of unscrupulous and selfish entities in maximization of their interests at the cost of the society, takes the form of a policy discussion at an intermittent stage and then

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becomes legislated as a code of conduct playing the role of precautionary measures to prevent recurrence of such errant behaviour on part of the banks and their employees. In terms of practice, any rule, if not compulsory to be followed, is not called law but when made compulsory it becomes a law whether or not in explicit form of an Act of the legislature. It won’t be a mistake from economic viewpoint to comment that banking laws in India evolve around rational decision making by some vested interests exogeneous to the central bank.

References Agarwal, A. (2018). “Banking crisis: Indian history, mint”, Accessed Jun 22, 2021, from https:// www.livemint.com/Sundayapp/fjheowjLjiFNsGcjzVZXsO/Banking-crises-An-Indian-history. html Banerjee, A. V., Cole, S. and Duflo, E. (2004). “Banking Reform in India”, Accessed Jun 24, 2021, from https://www.brookings.edu/wp-content/uploads/2016/07/2004_banerjee_cole_duflo.pdf Byjus. (2021). “History of banking”, Accessed Jun 23, 2021, from https://bit.ly/3wUvivV DLF Limited vs Punjab National Bank on 27 May, 2011, W.P.(C) 8520/2010, In the High Court of Delhi at New Delhi. Eken, M. H., Kale, S., & Selimler, H. (2013). The evolution of regulations in banking: A cycle based approach. ACRN Journal of Finance and Risk Perspectives, 2(1), 15–26. Goodhart, C. A. E. (2010). The changing role of central banks. BIS Working Paper, no. 326. H.K. Shenoy vs Syndicate Bank and Others on 4 August, 2017, Writ Petition No. 1984 of 2000, in the High Court of Judicature at Bombay. Kishore Deshpande vs The State of Maharashtra and Others on 28 June, 2019, Criminal Writ Petition No. 2809 OF 2017, in the High Court of Judicature at Bombay. Mint (2013). “Excerpt: Barons-of-banking”, Accessed Jun 10, 2021, from https://www.livemint. com/Leisure/RddHc295ZWVUGYumucxO3J/Excerpt%2D%2DBarons-of-Banking.html Moser-Boehm, P. (2006). “The Relationship between the central bank and the government.”, Accessed Jun 13, 2021, from https://www.bis.org/events/cbcd06d.pdf Mukherjee, A. (1992). Controversy over formation of RBI, 1927-35. Economic and Political Weekly, 27(5), 229–234. Nair, V. (2020). “Is the RBI truly autonomous?.”, Accessed Jun 3, 2021, from https://www. nairventures.com/post/is-the-rbi-truly-autonomous Posner, R. (2009). A failure of capitalism. Harvard University Press. Prakash, A. (2008). Evolution of the basel framework on bank capital regulation. RBI Occasional Papers, 29(2), 81–122. RBI. (2005a). “The RBI (1951-67)”, Accessed Jun 4, 2021, from https://www.rbi.org.in/scripts/ RHvol-3.aspx RBI. (2005b). “Crisis, consolidation and growth (1967–1981)”, Accessed Jun 5, 2021, from https:// rbidocs.rbi.org.in/rdocs/content/PDFs/90032.pdf RBI. (2013). “The RBI (1981-1997)”, Accessed Jun 9, 2021, from https://rbidocs.rbi.org.in/rdocs/ content/PDFs/RBIvol404122018_PartA.pdf Rungta, R. S. (1962). Indian company law problems in 1850. The American Journal of Legal History, 6(3), 298–308. Srikanth, M., & Prabhu, R. M. (2021). “Time for 5th generation banking reforms.”, Accessed Jun 12, 2021, from https://www.thehindubusinessline.com/opinion/time-for-5th-generation-bank ing-reforms/article34500228.ece

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The Hindu. (2021). “RBI imposes `3 crore penalty on ICICI Bank”, Accessed Jun 25, 2021, from https://www.thehindu.com/business/Industry/rbi-imposes-3-crore-penalty-on-icici-bank/arti cle34477731.ece

The Applicable Law on Digital Fraud Wael Saghir and Dimitrios Kafteranis

1 Introduction As we continue to move towards a more digitally interconnected world, particularly our increased reliance on using the internet to do most of our everyday activities from working to shopping, managing accounts and making payments, among other activities, due to the COVID-19 pandemic (ITU, International Telecommunication Union Economic Impact of COVID-19 on digital Infrastructure: Report on Economic Experts Roundtable Organised by ITU, 2020, pp. 11-12), it is not unexpected that we observe an increased rate of fraudulent activities committed over cyberspace. Additionally, the pandemic has further pushed consumers to resort to using non-cash payment solutions with reports showing a decline in the use of cash payments to 15% in 2019 (Jones, 2020). Figures show the magnitude of cybercrime where over 1.1 billion attacks were recorded in 2020 showing an increase in the number of cybercrimes at around 50% in a span of 6 months with an average of 1 attack every 65 seconds in some industries (Arkose Labs, 2020, p. 4). In a recent study concluded by UK Finance, over £1.2 billion were stolen through fraudulent activities ranging from unauthorised debt to remote purchase and Card ID theft among others, despite the ongoing active investment by financial institutions in cybersecurity and fraud detection technologies (UK Finance, 2020, p. 4). Perhaps the fact that companies are increasingly storing information electronically with more W. Saghir (*) International Trade, Investment and Corporate Governance Think Tank (Global Research Network), London, UK e-mail: [email protected] D. Kafteranis Centre for Financial and Corporate Integrity, Coventry University, Coventry, UK e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 N. Mansour, L. M. Bujosa Vadell (eds.), Finance, Law, and the Crisis of COVID-19, Contributions to Management Science, https://doi.org/10.1007/978-3-030-89416-0_14

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than 90% of businesses opting for cloud storage may have attributed to the increased cyber fraud rates (PwC Online).1 With such losses attributed to cybercrime, understanding what constitutes digital fraud becomes a crucial element that allows for better understanding of the nature of laws applied on such fraud and, at the same time, understanding how problems of conflict of laws in cyber fraud can be settled. Generally, cyber fraud includes account takeovers, API abuse, Brute Force Attacks, DDoS, Phishing, SQL Injection, Malware, Denial of Inventory, Fake Accounts, Gift Card Fraud, Inventory Scalping, Payments Fraud, Spams, Malicious Content, Search and Scrapings (Arkose Labs, 2020, p. 30). To tackle these cybercrimes, states entered a number of treaties and enacted numerous laws targeted at curbing and criminalising cyber fraud. For example, in the United States, the Computer Fraud and Abuse Act (CFAA) of 1986 and Title 18 of the U.S. criminal code. In the UK, the Computer Misuse Act (CMA) of 1990, The Fraud Act of 2006, the Theft Act of 1990, the Data Protection Act of 2018, the Communications Act of 2003, the Privacy and Electronic Communications Regulations of 2003 and the Network and Information Systems Regulations of 2018. In the EU, few directives were passed for the purpose of fighting cyber fraud including Directive 2013/40/EU on attacks against information systems. Additionally, treaties like the Budapest Convention on Cybercrime, otherwise known as the Convention on Cybercrime, were adopted to increase cooperation between member states in the fight against cybercrime. From here, it is crucial to probe the relationship between the rise of cyberspace fraud and the COVID-19 pandemic and the cross-border nature of cyber fraud. This will allow for a better understanding of the applicable law on digital fraud, which, in turn, will lead to better understanding on how the problem of conflict of laws is addressed in relation to cyber fraud.

2 Literature Review 2.1

Rise in Digital Fraud

Every crisis is an opportunity for criminals to find new innovative ways to commit fraudulent activities. It creates a temporary “chaos” where criminals have a place to develop new techniques of fraud and take advantage of the regulatory gap created due to such crisis. The COVID-19 health crisis and its impact on fraud is the perfect example of such opportunistic approach by criminals. The unprecedented situation of a pandemic has shocked the global community, changed the way we work and the way we do business. Countries all over the world were deeply shocked by the

Digital Fraud (PwC Online). Found at: . Accessed 02/06/2021.

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pandemic and its disastrous consequences. Everyone was forced to stay at home for many months and start living almost exclusively “online”. Technology offered significant help to states and citizens as it allowed everyone to work online (Hakak et al., 2020). From buying groceries to clothes, almost all commercial activities were transferred online as physical contact was not allowed. Despite the importance of development in technology and its assistance to humanity during these unprecedented times, the fast pace of online living and ease of accessibility has driven criminals to be more creative in their quest to defraud others. According to latest statistics, fraud exploded during the COVID-19 health pandemic notably due to the digitalization of everyday activities. Cybersecurity attacks aimed at the financial services sector increased to 238% during the health crisis, fraud has grown 72% and banks have highlighted a seven-fold increase in suspicious banking activities. In addition, the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCen) presented interesting findings. According to FinCen, criminals are using systems weaknesses to commit identity frauds resulting in more than 1 billion dollars of cybercrime-generated income every month. Such numbers demonstrate that the passage to online services and teleworking had negative repercussions on combatting fraud during the covid-19 health crisis. It is thus necessary to analyse the factors that led to this rise in digital fraud and then present the ways that criminals used to defraud individuales, businesses and financial institutions during the pandemic. The World Health Organisation (WHO) declared the COVID-19 outbreak as a global pandemic on the 11th of March 2020. Following the WHO declaration, several countries adopted strict measures in order to halt the spread of covid-19 by imposing “lockdowns”. Suddenly, millions of people around the globe had to stay and work from home, with limited access to outdoor activities. Perhaps “lockdowns” has contributed to the rise in digital fraud. The roots of this goes up to the psychological situation of individuales during COVID-19 and especially during the first period of the pandemic where little information was available about the virus. The insecurity of this first period created an atmosphere of anxiety and trauma (Lee, 2020). People were afraid to meet others (social distancing) and, at the same time, they were afraid of social exclusion and isolation (Kumar & Nayar, 2020). Moreover, the social stigma of being COVID positive became an important issue and a factor that was putting a great deal of stress on everyone. All these stressful and traumatic experiences made individuales more vulnerable and thus more susceptible to cybercriminals. Research has shown that 30% of digital fraud, during COVID, entailed targeting victims using relief as an emotional appeal, 22% is related to fraud and fear and 22% is associated with hope (Naidoo, 2020). Cyber criminals designed fraud that would appeal to individuales with fear, stress, anxiety and important sentimental vulnerabilities. Apart from the psychological reasons that led to the expansion of digital fraud during the COVID-19 pandemic, there are other reasons that led to digital fraud. One of these reasons is the anomie created during the health crisis (Cote, 2002). Durkheim (1893) notices that fast social changes that occur in an organized society (such as in the COVID-19 health crisis) may lead to a state of anomie. Anomie is described

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as the “breakdown of the ability of a society to regulate the natural drivers of individuals in face of rapid social change” (Cote, 2002, p. 96). This situation might lead to a state of normlessness. The result of the major crisis, the state of anomie and normlessness is a higher rate of criminal activities. When COVID-19 started to spread, individuales found themselves in a fast-evolving situation with major changes and inconsistencies. Leadership could not, or did not, react properly to the health crisis and individuales were confronted with novel situations such as working from home, and extensively relaying on online services. This rise in digital fraud can thus be attributed to the sudden shift to a digital-centric lifestyle. The COVID-19 health crisis has touched the banking and financial sector as well (Boeddu et al., 2020). The lockdowns have obliged financial institutions to continue working online in order to serve the needs of their customers and to facilitate the work of their employees. New technologies were key to allow this sudden transition to an online working and services system. Although the digital transition was arguably successful, it has exposed the financial system to vulnerabilities that criminal targeted and took advantage of to generate illicit profit (Lallie et al., 2021). Financial services, e-commerce and travel platforms have shown an increase in fraud-related activities especially at the beginning of the health crisis. Cybercriminals did not limit themselves to financial institutions but also targeted social media and mobile devices. The need to ensure that the global financial markets and commerce would continue to function as normal as possible has led to new technological infrastructures that definitely ensured the continuity of services but, at the same time, opened the gates to cybercriminals for new forms of fraud (Chang et al., 2020). During the COVID-19 health crisis, criminals found new ways to defraud citizens and businesses (International Monetary Fund, 2020). First, the cyberspace offers limitless ways to defraud businesses and individuales and criminals became more creative in the ways they generate their illicit profits. Second, the sudden transition to a new digital life and work during the health crisis allowed criminals to flourish. Cyberspace was abused by criminals and, interestingly, victims were not always aware that they were being defrauded. As such, victims are not always aware that they have been victims of fraud and even if they are aware of it, they may not report it due to the fear of stigmatization. In this climate of COVID-19, cyber fraud does not have a specific morphology or type, rather it can take different forms. For example, one of the forms may be driven by an individual's fear for their life from the virus. (Naidoo, 2020). This inherent fear and the feeling of survival has led several individuales worldwide to become more susceptible to fraudsters who took advantage of their victims' ’ insecurities. Fraud, in this category, became apparent by selling “hope” to people (Ma & McKinnon, 2021). For instance, e-mails were sent with information about possible cures of COVID-19 infection or e-mails coming from public institutions selling cures or even vaccines. Criminals were taking advantage of their victims' hope for a better health life. Unfortunately, some people were responsive to these e-mails and paid significant amount of money in order to receive the cure or the vaccine faster. For instance, in Canada, more than 5.200

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cases of COVID-19 related reports have been made to Canadian Anti-Fraud Centre with an estimated 6.2 million dollars lost (Canadian Anti-Fraud Centre, 2020). Several types of fraud have been apparent in the financial sector (Ma & McKinnon, 2021). As explained, the rapid transition to a digital-centric service provision presented criminals with a fertile ground to exploit loopholes and vulnerabilities allowing them to defraud individuales and businesses alike in many ways. Fraud and scams related to financial products and services were at the top of criminals’ priorities. Fraudulent activities included unauthorized access to victim’s accounts, exploitative financial products such as investment or insurance products. A first form of fraud during the health crisis was unauthorized transaction using financial information (Ma & McKinnon, 2021). In this form of fraud, cybercriminals do not have the details of the victim’s identity, but they have enough financial information that allow them to achieve illegal monetary gains through unauthorized transactions (Ma & McKinnon, 2021). Gaps in online financial payment systems have allowed cybercriminals to gather important information such as credit card credentials and to defraud consumers. Indeed, the most common fraudulent activity during that period was stolen credit card information which occurs due to security gaps in online transactions. Another type of a fraudulent activity using financial information is fraud involving elder persons. As explained, the fear and despair created due to COVID had affected different parts of the global population and particularly older people. The elderly were among the most impacted segments of the society by fraud in different ways (Department of Justice, 2020). The social distancing measures, especially for elder people, was beneficial to avoid infection but it created an atmosphere of dependance on others. Those who the elderly depended on were normally members of their family or trusted individuals who were able to assist them with their basic needs. As everything moved online, a great percentage of older people was not familiar with new technologies especially those related to banking and financial services. As a result, they have delegated other individuals to take care of their financial activities which led to cases of fraud by those who the elderly entrusted. As the potential defraud the elderly increased, the chances of catching perpetrators became less (Han & Mosqueda, 2020). The need to serve the elderly during lockdowns have put them in great vulnerability and more likely to be defrauded (Makaroun et al., 2020). Another form of digital fraud during the health crisis is illegal transaction by the use of identity information (Ma & McKinnon, 2021). Once again, cybercriminals take advantage of the fear and instability of individuales and engage in fraud by using their identity. one of the many ways of identity fraud has been done via schemes of government relief and questionable tracer calls (Federal Bureau of Investigation, 2020). Fraudsters took advantage of the governmental schemes introduced in several countries to help people and business financially. Cybercriminals sent fraudulent e-mails pretending to be governmental agencies and defraud people and businesses. They either offered help to fill in the documents for state aid or used stolen identities to ask for financial relief in the name of their victims.

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Another way to defraud potential victims was by pretending to be governmental contact tracers. Health governmental departments around the globe had established specialized centres to contact people who have been exposed to COVID-19. Fraudsters pretended to be these health officials and were demanding information from their victims (Federal Trade Commission, 2020). Information ranging from bank account details to social security numbers, allowed cybercriminals to exploit bank accounts and to financially abuse their victims. It is obvious, again, that the despair and insecurity of COVID-19 period was the perfect ground for fraudsters to exploit and abuse their victims. Cybercriminals imagination for novel fraud practices intruded the romance world. Social isolation made people feel weak and romance moved into the online world. Fraudsters took advantage of social isolation and the need to meet new people online and started to defraud their victims. The most usual technique was to talk online with someone, pretending to be in love with them then asking the victim for financial aid to help survive the COVID-19 period. As a result, victims sent large amounts of money to dubious accounts. At times, cybercriminals and sent cheques to their victims fraudulently to take money from the victims. The continued lockdowns created an atmosphere of despair to people who continued to be victims of these scams in their search for love and attention (BBC, 2020). The final form of fraud that cybercriminals used during this period is one related to virtual asset money laundering. The Federal Bureau of Investigation (FBI) has recognized that money laundering has increased widely during the covid-19 health crisis (FBI, 2020). Cybercriminals use their victims’ banking account details in order to launder illicit funds online (FBI, 2020). By using high complex virtual payment schemes and sophisticated techniques, cybercriminals money laundering activities cannot be traced by law enforcement agencies around the globe (FBI, 2020). It is significant that the Financial Action Task Force (FATF) has highlighted the increased use of virtual assets to move and conceal illicit funds (FATF, 2020). In the period between 2018 and March 2020, FATF reported that 19 different jurisdictions received around 134.500 suspicious transactions. As the COVID-19 health crisis is not over yet, it is certain that virtual fraud related to money laundering will continue to flourish. These fraudulent schemes can be related to work from home fraud, investment scams, paying for inexistent equipment and blackmailing (FBI, 2020). At the same time, employees and regulators who traditionally control these fraudulent activities are mostly occupied with business continuity during the COVID-19 crisis and thus they leave a gap that cybercriminals take advantage of. As such, cybercriminals were not influenced by the COVID-19 health crisis, rather they became more active. A final issue that is not broadly discussed in the literature is the issue of jurisdiction. Cyberspace has been widely debated when it comes to jurisdiction, prosecution and gathering of evidence (Fletcher, 2007). During the COVID-19 health crisis, instances of fraud did not affect only certain citizens in a specific country, rather several citizens of different countries were also affected. Jurisdiction in cyberspace, even before COVID-19, was not regulated in an effective way. As cybercrime can be carried out in one country against a citizen of another country and therefore, jurisdiction is an important issue that needs to be

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addressed and international cooperation is required (Fletcher, 2007). Jurisdiction in cyberspace is a complex issue when asking ourselves “who is responsible?”. As internet is multi-jurisdictional, there is a problem on which laws are applicable in a given case of fraud. Suri and Chhabra (2003) have stated that: the developing law of jurisdiction must address whether a particular event in cyberspace is controlled by the laws of the state or country where the Web is located, by the laws of the state or country where the internet service provider is located, by the laws of the state or country where the user is located, or perhaps by all these laws. These demonstrate a wide range of choices but without clear guidelines, it is difficult to ascertain which jurisdiction applies to fraud. Other commentators such as David Johnson have argued that cyberspace should be treated as a separate jurisdiction (Suri & Chhabra, 2003, p. 72); this view finds courts against it. Another issue is the gathering of evidence for prosecution if, finally, a country has jurisdiction over an online fraud. The problem with evidence lies on the fact that certain countries do not have a legal framework for cyber fraud, or their legal framework is weak; consequently, they cannot provide evidence to the prosecuting authorities of the other country (Grabosky et al., 2001, p. 182). It is important to examine the legal framework governing digital fraud in the EU and in the US especially to observe what steps have been made to tackle digital fraud more effectively.

2.2

Laws Governing Digital Law

Regulating the Internet is a challenging field for lawmakers and regulators as millions of people actively use it on daily basis. Such use had grown more to what can be considered as semi-dependency during the COVID-19 health crisis. Tracing back the internet’s origins which was first used as a military information database for the US, UK and France during the Cold War, the idea behind a worldwide communication system was further pushed by an MIT scientist and later adopted by the US Department of Defense Advanced Research Project Agency (Thomas Jefferson University Online; The National Science and Media Museum). From the nineties, the internet started to be a reality for thousands of people and businesses around the globe. Despite its use, in that period, as means of communication, the internet today facilitates different functions from commerce to education. The evolution of the internet from personal computers to mobile phones, e-commerce, public and private sector services, as well as the Internet-of-Things have created a new reality which faces numerous challenges. One of these challenges is the need to protect its users from malicious attacks (Vagena & Ntellis, 2020). This is where cybersecurity comes into the picture. It generally deals with protecting users from fraud. With cybersecurity in mind, regulators and policy makers were entrusted with shaping a legal framework that helps prevent and punish cybercriminals. As such, it is important to examine the legal framework governing instances of digital fraud in the EU and in the US. Briefly looking into these legal frameworks will allow for a

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better conclusion regarding their characteristics which would lead to better understanding on how problems of conflict of these laws could exist. The theme of cybersecurity in the EU is central in its agenda. In 2017, the -thenPresident of the European Commission argued: “In the past three years, we have made progress in keeping Europeans safe online. But Europe is still not well equipped when it comes to cyber-attacks. This is why, today, the Commission is proposing new tools, including a European Cybersecurity Agency, to help defend us against such attacks”. The EU has developed an important set of rules in order to tackle cyber-attacks and to provide adequate protection to users of the web. In 2001, the EU adopted the Council Framework Decision 2001/413/JHA on combating fraud with regard to forgery of non-cash means of payment. The Framework decision defines fraudulent behaviors that Member States should consider as punishable criminal offences. In 2002, the Directive 2002/58/EC relevant to the processing of personal data and the protection of privacy in the electronic communication (known as the ePrivacy Directive) was adopted. Under this Directive, providers of electronic communication services have to ensure the confidentiality of users’ information and the security of the services they provide. In 2005, the Council Framework Decision 2005/222/JHA related to attacks against information systems was adopted. The purpose of this Framework Decision was to harmonise criminal law and procedure related aspects of cybercrime prosecution and investigation. In 2013, the Directive 2013/40/EU on attacks against information systems was adopted. This Directive was replacing the Framework Decision 2005/222/JHA. The Directive had a criminal law focus. It aimed to approximate criminal rules on definition of criminal offences and the relevant sanctions concerning attacks against information systems. Also, the Directive aimed to enhance cooperation on these issues between national and European authorities. That same year, the EU Cybersecurity Strategy was adopted, setting objectives and concrete actions to reduce cybercrime, develop better and effective policies and resources and establish a coherent cyberspace policy for the EU (Vagena & Ntellis, 2020). In addition, two years later, in 2015, the Digital Market Strategy was adopted which aimed to enhance the internal market in the light of digitalization. To that end, a special focus was put from the EU to cybersecurity threats by putting cybersecurity as one of its priorities (Kjorven, 2020). In 2016, the Directive on security of network and information systems which desires to increase the level of cyber security across the EU was adopted. The Directive aims to enhance cooperation between Member States for the purpose of cyber security (Markopoulou et al., 2019). The Directive demands Member States to define providers of essential or vital services in the areas of health, energy, transport, financial services, water supply and telecommunications in order to ask these legal entities to increase the level of security and safety in their web services. Furthermore, the Directive demands that instances of cyber-attacks and fraud to be reported to national authorities. For that purpose, the Directive requires Member States to establish a national single point where these reports could be made and a Computer Emergency Response Teams—CSIRTs network.

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Between 2017 and 2019, the European Commission proposed different legal acts that would enable the fight against cyber-attacks. Its proposals were related to the enhancement of existing criminal law measures, the establishment of a new EU Cybersecurity Agency or the enhancement of rules about fraud and counterfeiting of non-cash means of payment (Vagena & Ntellis, 2020). Finally, in 2019, the EU Cybersecurity Act was adopted. The new Act aims to reinforce the role of the European Union Agency for Network and Information Security (ENISA) which will not only provide assistance, guidance and advice to Member States but also will perform operational tasks. In addition, the creation of an EU cybersecurity certification framework for ICT products and services sold in the EU is created. ENISA is the EU Agency for information security. Based in Athens since 2004, ENISA supports the EU institutions and agencies on issues related to network and information security at the EU. Also, ENISA supports actively the business community in order to develop techniques that will deal with digital fraud and cyber-attacks. Another important agency at EU level especially designed for the fight against digital crime is the European Cybercrime Centre (under the EUROPOL). Established in 2013 by EUROPOL, the European Cybercrime Centre aims to strengthen the law enforcement response to cybercrime in the EU and to enhance the protection of citizens, governments and businesses from malicious attacks. Each year, the European Cybercrime Centre publishes its Internet Organised Crime Threat Assessment (IOCTA). The last one, published in 2020, highlights that the COVID19 health crisis demonstrated criminal opportunism and presented challenges in the field of cybersecurity (IOCTA, 2020). The US was the first country to adopt legislation concerning cybersecurity in 1984. The Computer Fraud and Abuse Act of 1984 (CFAA) came as a response to the fears that computers were presenting at that time. CFAA is a civil and criminal law that prohibits a range of computer-based behaviors. The 1984 Act prohibited three subsets of computer-based conducts: first, obtaining information about national security issues via unauthorized computer access, second, acquiring financial details through unauthorized computer access and, finally, trespassing a governmental computer with the purpose to use, destroy, modify or disclose information. The 1984 Act was criticized for its limited scope and the Department of Justice (DOJ) has asserted that prosecutions, based on the 1984 Act, were difficult. As a result, in 1986, amendments were adopted in order to enlarge the scope of the 1984 Act. The modern CFAA has its roots to the amendments made in 1986. The CFAA prohibits two conducts: one, conduct that is carried out by an individual “without authorization” or who “exceeds authorized access” and, two, conduct that involves a computer. Prohibited conducts under the CFAA are: cyber espionage, obtaining information by unauthorized computer access, government computer trespassing, computer fraud, damaging a computer, password trafficking and threats and extorsion. The Act provides a number of remedies when its various prohibitions are violated. The most common are criminal penalties of fine and imprisonment. The enforcement of the Act is crucial and, consequently, several law enforcement agencies are designed to enforce the CFAA.

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The DOJ has entrusted a number of its employees with investigating and prosecuting computer crimes through establishing several agencies. These different agencies inside the DOJ are the Computer Crimes and Intellectual Property Section (CCIPS), the Computer Hacking/Intellectual Property (CHIP) Unit, the Intellectual Property Task Force, the International Criminal Investigative Training Assistance Program, the National Security Cyber Specialists (NSCS), the Cybersecurity Unit, and the FBI (Hill & Marion, 2016). In addition, the Secret Service has jurisdiction over cybercrime which was given by President George W. Bush when he signed the PATRIOT Act in 2001. Following the terrorist attacks of September 11, 2001, the Department of Homeland Security took responsibility over cyber threats as well. Within the Department of Homeland Security, the United States Computer Emergency Readiness Team responds to cyber-attacks and provides assistance to victims of cybercrime. Finally, the Department of Defense has its own role in the fight against cybercrime as well. The FBI does a significant work in the fight against cybercrime. Working on a state and federal level, the FBI’s Computer Crimes Task Forces provide resources to tackle cybercrime which affect businesses and individuals in the US. The FBI has developed several cooperative relationships with the aforementioned US agencies in order to facilitate the investigation and prosecution of cybercrime. In addition, the FBI has started iGuardian, a secure information portal for those who work in critical industries such as the banking and finance sector in order to ensure the safety of the nation’s critical infrastructure. Finally, the FBI in collaboration with the National White Collar Crime Center has developed the Internet Crime Complaint Center (IC3) which serves as a vehicle to receive, develop, and refer criminal complaints regarding cybercrime (Hill & Marion, 2016).

2.3

Problems of Conflict of Laws

Given the international nature of the internet, a malicious act can originate anywhere in the world targeting a particular individual, organisation or even governments in other parts of the world. Such cross-border criminal activity could result in problems understanding which law, on an international level, is applicable. Conflict of international laws has been a challenging matter to resolve particularly since legal systems of each state are designed to particularly reflect their unique societal values. From here, it is important to probe how conflict of laws are settled particularly when looking at cybercrimes. In settling problems of conflict of laws, one of the first things to look into normally would be the location where the cybercrime originated. This may not be as complex in matters related to divorce law, inheritance law and commercial law. However, given the internet’s nature, pinpointing a particular location may not be straightforward especially when cybercriminals use technology known as Virtual Private Network (VPN) to hide their actual location or use peer-to-peer networks or

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even The Onion Router (TOR). This transnational nature is one of the characteristics of cybercrime which is a direct result of its decentralised nature. This complexity in defining the borders where cybercrime originated was noted in one of the EU’s recent cases, Concurrence Sàrl v Samsung Electronics France SAS and Amazon Services Europe Sàrl, in which it recognised the difficulty in defining where “the casual event or loss sustained” as a result of the cybercrime has taken place. Perhaps the case of Yahoo! and Belgium would present good grounds for understanding the governing law over cybercrime. The Belgian Supreme Court, in this case, confirmed the Court of Appeal’s arguments rendering the US company, Yahoo! Inc, as physically present in Belgium on the basis of domain name, use of local languages, location-based advertisements featured on the website and on the basis of accessibility to Belgian users through the Q&A sections on their Belgian website. Consequently, the Court of Appeal suggested that claims made by Yahoo! regarding exterritoriality could have been present should there have been a request to submit data located in the US resulting in no territorial link with Belgium (Yahoo! Inc v Belgium). Keeping in mind the transnational nature of cybercrime, a cybercrime in the form of e-mail hacking, for example, may originate in one country and could target the data of users internationally. This would even become more complicated as users’ data may not necessarily be where the company collecting and storing the data is located. It is not uncommon for a company to be located geographically in a particular state and its servers located in another. When looking at legal doctrines that may be closely related to applicable law on cybercrime, one can notice the presence of the principal of territoriality and the principal of jurisdiction over nationals. Additionally, some states extend the principal of territoriality to include jurisdiction over criminal activities against it under anti-terrorism laws. What all these have in common is how states apply these principals and laws on an extraterritorial level. Starting with the principal of territoriality, which was cited in the UN’s Charter, it observes the right of each sovereign state to impose its laws and regulations over its territory (Article 2(7) United Nations Charter). Additionally, state’s territoriality extends to state’s diplomatic and consular relations existing outside its borders giving the principal of territoriality of law an extraterritorial element (Banković and Others v. Belgium). This principal is connected to the “place of wrong” approach where the jurisdiction over an offence or crime is where the wrongdoing took place (Rheinstein, 1945, p. 4). On the other hand, the principal of jurisdiction over nationals, whether through the active nationality principal or through the passive personality principal, was thought to be subordinated to the state which the citizen belongs to and that where the citizen is present (Banković and Others v. Belgium). The notable observation in both cases of jurisdiction over citizens and over territory is the existence of a genuine link that comes either in the form of a geographic territory or citizenship.

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Finally, prosecuting cybercrime under anti-terrorism laws have been in force in the United States where it was reported in 2001 that foreign cybercriminals attacking computers based in the US or in their own countries may be persecuted in the United States using the Patriot Act under Section 217. Perhaps this may fall under the universal jurisdiction principal where cybercrime may be regarded as a serious crime amounting to the same degree as war crimes and crimes against humanity where a state, irrespective of the perpetrator’s nationality or physical presence and disregarding where the criminal activity took place and the nationality of those on the receiving end of the crime, may assert its jurisdiction internationally. These principals and laws particularly when probing cybercrime could result in more than one state asserting their jurisdiction over the cybercrime. In such instances, how can this assertion of jurisdiction be settled? One of the first things to look into is treaty law. For example, the Budapest Convention on Cybercrime of 2001 in its 22nd article of Section 3 indicated that jurisdiction over cybercrime is thought to be present if an offence is committed within a particular state’s territory, or onboard of a vessel flying its flag or by one of its nationals (Article 22(1), Section 3, Cybercrime Convention). Additionally, it cited instances of potential conflict of international laws and suggested a mechanism for settling such conflict through allowing the conflicting jurisdictions to “consult with a view to determining the most appropriate jurisdiction for prosecution” (Article 22(5), Section 3, Cybercrime Convention). The treaty here clearly referred settled the Governing jurisdiction debate over cybercrime through the lens of the territoriality principal. Though this may theoretically have settled the debate over the governing jurisdiction, thus the governing law, the reality is that the convention failed to cite instances where the cybercrime was conducted using any of the satellites roaming in space. Not to mention instances of data breach where the serves containing the breached data are located in a geographic location other than where the hosting company is registered. For example, the European Commission decided to extend to US companies that complies with the Commission’s requirements the freedom to transfer data from the EU to the US in what is known as the Safe Harbour Privacy Principal (Commission Decision 2000/520/EC). However, Safe Harbours may not be looked at favourably always by juridical authorities where, for example, in a recent case presented to the European Court of Justice, the court ruled that the EU’s Transatlantic Safe Harbour is invalid given the lack of adequate protection awarded to users (Schrems II Case Judgement). What is observed is that judges use serval criteria to determine their jurisdiction over a cybercrime to establish the presence of a sufficient link between a particular jurisdiction and the cybercrime (Urepmann-Wittzack, 2010, p. 1255). Perhaps the exhaustion of the jurisdiction principal as observed in the Cybercrime Convention, have not necessarily settled the conflict of law rules. In such instance, a particular state may opt for the universal jurisdiction principal allowing it to submit jurisdiction over a cybercrime should it amount to a serious crime in a manner similar to the US Patriot Act. However, for this to apply, the cybercrime should amount to a serious crime and should be exercised on reasonable grounds and with

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other states’ interest taken into account. As such, the debate here would be whether cyber-fraud could be regarded as a serious crime that could invoke the application of the Patriot Act or an offence where a genuine link should be established to claim jurisdiction over it. In matters outside the realm of serious crime, thus outside the scope of the Patriot Act, the US Code cites several instances related to cyber-fraud. For example, the establishment of jurisdiction over issues related to cyber-fraud was seen to have been sufficient by just demonstrating a computer was connected to the internet (18 U.S.C. § 1030(e)(2)(B)) and (United States v. Trotter) and (Continental Group v KW Property Management).

3 Research Methodology The central question in the wake of the COVID-19 pandemic is one that revolves around cyber-fraud. Particularly the applicable law on cyber-fraud and cyber-crime. Probing this issue becomes a matter of grave importance due the transnational nature of cyber-fraud especially since this crime originates in one geographical location and its effects can be widespread affecting users in different countries. To better answer this question, probing the nature of this crime and how it emerges is crucial. Additionally, examining how the COVID-19 pandemic contributed to the current rise in this crime helps further highlight the transnational nature of cyber-fraud, thus further emphasizing how the problem of conflict of laws can be solved. Following the pragmatism research philosophy, the aim is to directly address the research question and present possible solutions. This is done through focusing on different points of views and presenting current reasoning in solving the conflict of laws in cyber-fraud. Using the abductive research approach, and analysis of the collected data and theories presents the ideal method to probe new theories and solutions. This approach is most suitable when using a mixed method of research especially since presenting qualitative data found in studies either funded by public organisations or conducted by private ones to help put more emphasis on the issue being presented compliments the usage of quantitative data collected through analysing and presenting laws, regulations, policies and points of views of leaders in the field. To successfully do so, examining the current COVID-19 pandemic as a case study that emphasizes how the rise in digital fraud could also mean a rise in a particular predicament, i.e. the conflict of laws problem, that requires a solution. Through this, solving the problem of conflict of laws governing cyber-fraud was settled primarily by virtue of examining international treaties and conventions, then by probing the principal of territoriality and the principal of jurisdiction over nationals and finally via examining laws with extraterritorial effects. All while keeping in mind the need for sufficient connecting factors to be established between the cybercrime and the applicable law in the form of territorial links, citizenship-based links or both.

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