Access to Credit in Informal Economies: Does Financial Information Matter?

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2022
Authors
Tomy, Rimmy
Moerman, Regina Wittenberg
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Traders operating in informal economies, characterized by low economic development and growth, rarely use financial information in their credit allocation decisions. However, using this information could improve the efficiency of lending decisions, thereby increasing access to credit and promoting economic growth. We use a combination of survey questions and a hypothetical choice experiment to study traders’ preferences for financial information in a bazaar economy. Although wholesalers value informal information such as retailers’ community membership and relationship length, they also overwhelmingly value retailers’ sales and profits in making credit decisions. Based on estimates of wholesalers’ willingness to pay for various types of retailer information and retailers’ responses to survey questions, our findings suggest that the perceived lack of reliability of financial information, rather than financial illiteracy, drives the current sparse use of financial information.
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financial information, financial reporting, trade credit, informal economies, developing economies
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