Preventing misuse behavior in green loans: a game theoretic analysis of manufacturers and banks under government regulation

Green loans are financial tools that banks offer manufacturers at preferential rates to support carbon emission reduction, playing a crucial role in sustainable development. However, to reduce financing costs, the manufacturer might misuse this capital for production and cause environmental damage. This paper constructs a game model between a bank and a manufacturer to prevent such behavior. By comparing non‐misuse and misuse scenarios, we evaluate the impact of the government fine on the manufacturer and the joint penalty on the bank. The results indicate that when the fine and the joint penalty are low, both parties prefer misuse scenario. When the fine is moderate, the bank finds it optimal to lower its interest rate, thereby sacrificing short‐term profit to deter the manufacturer's misuse behavior. It also achieves a win–win for the environment and society. When the fine is high, the bank's interest rate and the manufacturer's production quantity are the same in both scenarios. Here, government regulation ensures the manufacturer uses loans properly but does not improve social performance. These findings help policymakers design measures that balance loan effectiveness, environmental protection, and social welfare.