This article will help you to learn about the difference between quantitative and qualitative credit controls.

Difference between Quantitative and Qualitative Credit Controls

A pertinent question that can be conveniently raised is: are quantitative credit controls more important or qualitative?

In theory as well as in practice, there is much to be said in favour of qualitative controls and against an indiscriminate use of quantitative methods. On the other hand, qualitative controls cannot alone cure an inflationary situation.

Quantitative controls aim at regulating the overall volume of bank credit, rather the particular made use of it. ‘Selective’ or ‘Qualitative’ controls may have an important direct impact on particular sectors of the economy. But their effectiveness is limited. A special control may restrain direct bank loans to finance stock market speculation, but it cannot prevent the use of other bank credit for this purpose.


Another big weakness of selective controls is that they directly restrict individual choice among alternatives. Special controls on housing credit, for example, mean that the government diverts consumers away from buying houses to other ways of spending money. General controls, by contrast, limit the total amount of money but they don’t try to influence what kind of spending the borrower does.

However, selective credit controls have own merits. For example, during inflation, quantitative controls are likely to pull the economy down to depression, if applied too severely. They are jerky in their operation. Fear of a shortage approach leads many observers to prefer selective or qualitative restraints to check inflationary loans. They argue that the problem is usually centered in some particular sector of the economy, and that to use general restraint is to risk killing off the whole boom in order to get at the offending sector.

The boom may be caused by excessive consumer spending on durables, or excessive credit-financed housing or rampant stock market speculation. All these factors may be running the boom so fast as to endanger the whole prosperity. But soft spots remain in other parts of the economy. In these circumstances, the right policy will be to adopt real estate credit control, controls on down payment sales of consumer durables and fixing margin requirements for stock market speculative credit.

If we restrict ourselves to quantitative methods, with the speculative mood in real estate and a spending spree on other consumer durables, it might take very high interest rates to damp real estate and other demands, and these would risk killing off the entire boom. Direct restrictions on these special sectors can nip the over-expansion there with little danger to the rest of the economy.


But as, we noted above, selective controls have their own weaknesses. Uneven enforcement is the greatest danger of such special controls. Selective credit controls are not a real substitute for general credit restraint, when in an economy-wide inflationary boom is the problem. However, they can play a useful, though modest, role for restraining particular kinds of credit extension. They are a good supplement to the quantitative controls.