Introduction

The diffusion of consumer credit differs widely from country to country, although in recent years, the use of consumer credit has recorded high levels of growth throughout most of Europe. In some countries, such as the United Kingdom, Germany, Spain and France, household unsecured debt levels are high, whilst in others, such as Portugal, Italy and the new Member States of the EU, they remain comparatively contained. These differences stem from a variety of factors, many of which idiosyncratic – such as trends in macroeconomic variables, welfare policies, efficiency of justice systems, development of informal credit markets – which have an impact on the demand for and supply of consumer credit and, consequently, the size of local credit markets. These are flanked by others, related both to households' attitudes to thrift and indebtedness as well as the characteristics of the credit industry and the role lenders play in delivering consumer credit solutions. The extent and success lenders have in carrying out this role depends, for example, on production innovation, heightened customer service levels and operating size. These factors will dictate the extent lenders are able, firstly, to exploit economies of scale for the reduction of costs associated with lending large quantities of small-sized loans and, secondly, to build suitably diversified loan portfolios.