Bank loans vs debt within social networks: The case of Central Asia

Abstract

In the countries of Central Asia, rituals of weddings, funerals and other important events play a significant role. Many complex ceremonies impose a financial burden on households, which is alarming for the authorities, who see the ritual economy as a threat of the citizens' impoverishment. The reputation of families and the desire to confirm social status in the eyes of relatives, neighbors and friends doom households to conspicuous extravagance. This article uses empirical evidence collected through interviews with the residents of Central Asian countries in 2021-2022. The ritual economy in the countries of Central Asia is a vivid example of social pressure on the financial behavior of families. Spending during the performance of rituals is a kind of self-presentation of households. A significant part of the inhabitants of the Central Asian region is not able to bear the burden of expenses associated with the performance of rituals without borrowing. Even despite the fact that, for example, for weddings they begin to prepare much in advance. However, own savings, as a rule, are not sufficient. The way out is a formal or informal loan. The article describes how debt obligations are organized under a formal agreement with a bank loan or informal borrowing from friends and relatives, and what drives household choice. The expansion of bank lending is driven by two reasons. The first is the attractiveness of bank loans due to the fact that they are not personalized and do not imply a feeling of personal gratitude to those who lend money. The second reason is the growth in defaults on loans from relatives and friends, which causes a reduction in the practice of using social networks as sources of lending. Non-payments of loans indicate a reduction in the ability of the social environment to control the behavior of its members.