For better or for worse: How Mutual Credit Systems bolster resilience of small firms

This study provides the first firm-level evidence of the impact of a Mutual Credit System (MCS) on firm resilience. MCSs were introduced in local economies as monetary systems for firms, with the explicit intention of offering their member firms a network of support. We employ a staggered difference-in-differences approach on a novel transaction dataset to assess the impact of MCS membership on firm liquidity and revenue. Our findings unveil a nuanced pattern: during periods of stability, MCS membership appears to entail costs, but its impact turns decidedly positive in periods of economic turbulence. Small firms reap the most significant benefits, particularly those engaging in more transactions and higher credit exchange volumes. Our results emphasize the importance of combining credit and social mechanisms to enhance financial resilience. These findings underscore the role of MCSs as a safety net for small firms, providing crucial support precisely when these firms are most vulnerable in times of crisis.