Formalize the informal: market segmentation and integration in the formal and informal credit markets in Wenzhou

Zhong-ming, Cheng; Zhang, Bo; Huang, Xinhe; Chen, Yuhang

doi:10.1080/1331677x.2022.2108477

Cited by 3 publications

(8 citation statements)

References 18 publications

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“…They are administered through the financial system, which is a formal policy implementation intermediary (Development Bank of Rwanda, 2023). Whilst the schemes aim to support SMEs' access to finance for strategic economic growth (Jayeola et al, 2022;van der Schans, 2015) and crowd out informal finance (Cheng et al, 2023), the study's results show that when SMEs had strong intentions to export regionally and globally, government support was not pursued. This result indicates a potential lack of trust in the banking system and/or governmental institutions (Mpofu and Sibindi, 2022;Omeihe et al, 2021), and potentially a misalignment between government objectives and SME export financing needs, a notable outcome given that the Rwandan government initiated new schemes to boost exports every year from 2015 to 2017 aimed (Redifer et al, 2020).…”

Section: Government Support and Sme Exportingmentioning

confidence: 92%

“…, 2023; Mertzanis, 2019). Moreover, the growth of formal financial institutions can either encourage (crowding in) or discourage (crowding out) the use of informal finance for SMEs (Cheng et al. , 2023).…”

Section: Literature Reviewmentioning

confidence: 99%

“…Such resistance was also evident in bank financing for regional expansion. Therefore, new institutional practices should focus on "crowding in" rather than "crowding out" (Cheng et al, 2023;Gozzi and Schmukler, 2016). The legacy institution, i.e.…”

Section: Conclusion Implications Limitations and Future Researchmentioning

confidence: 99%

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Entrepreneurial financing: how global and regional export intentions affect financial and non-financial choices for small and midsized enterprises in low-income countries

van Klyton,

Arrieta-Paredes,

Byombi Kamasa

et al. 2024

IJEBR

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PurposeThe study explores how the intention to export affects financing and non-financing variables for small and medium-sized enterprises (SMEs) in a low-income country (LIC). The objectives of this study are (1) to discern between regional and global exporting and (2) to evaluate its policymaking implications.Design/methodology/approachPrimary survey data were collected from 330 Rwandan SMEs and were analysed using ordered logistic models as an application of the expectation-maximisation iterating algorithm, which was tested for robustness using a sampling model variation.FindingsThe results show that alternative sources of finance are the predominant choice to finance the intention to export within and outside Africa. As the scope of export intentions broadened from regional to global, there was a shift in preferences from less formal to more formal lending technologies, moving from methods like factoring to lines of credit. Moreover, reliance on bank officers became more significant, with increasing marginal effects. Finally, the study determined that government financing schemes were not relevant for SMEs pursuing either regional or global exporting.Practical implicationsWhilst alternative sources of finance predominate the export intentions of Rwandan SMEs, establishing a robust banking relationship becomes crucial for global exporting. Despite this implication, the intention to export should prompt more transparent communication regarding government financial support programmes. There is an opportunity for increased usage of relationship lending to customise support for SMEs involved in exporting, benefiting both the private and public sectors.Originality/valueThis study accentuates how export distance alters SME financing priorities. The results also contribute to understanding how the value of relationship lending changes when less familiar markets (i.e. global exporting) are the objective. Moreover, the study offers a new perspective on how institutional voids affect entrepreneurial financing decisions in LICs.

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Section: Government Support and Sme Exportingmentioning

confidence: 92%

Section: Literature Reviewmentioning

confidence: 99%

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Entrepreneurial financing: how global and regional export intentions affect financial and non-financial choices for small and midsized enterprises in low-income countries

van Klyton,

Arrieta-Paredes,

Byombi Kamasa

et al. 2024

IJEBR

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show abstract

“…In such a structure, a formal track (regulated and monitored) and an informal track (shadow economy) coexist [ 60 ]. The official sector is characterized by financial institutions, regulatory frameworks, and established banking practices [ 61 , 62 ]. The shadow sector, on the other hand, consists of economic activities that operate informally, often due to limited access to official financial services [ 63 ].…”

Section: Literature Reviewmentioning

confidence: 99%

Impacts of financial development and green trade on the shadow economy: An insight of eagle countries using Bayesian approaches

Thanh,

Diep,

Tram

2024

PLoS ONE

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The existence of a shadow economy is recognized as an impediment to sustainable development. By applying the Bayesian approaches, the current article investigates the linkage between financial development, green trade, and the scope of the shadow economy, aiming to contribute to a comprehensive understanding of how these factors address the challenge posed by the shadow economy in Emerging and Growth-Leading Economies (EAGLE) from 2003 to 2016. The results demonstrate that (i) The progress of the financial sector is expected to diminish the scale of the shadow economy. Specifically, the expansion of financial institutions and markets has a strong and negative influence on the shadow economy. (ii) Increased involvement in green trade is likely to result in a decreased shadow economy. Empirical findings provide evidence for effective policymaking in simultaneously promoting sustainable trade practices, strengthening financial systems, and curtailing informal economic activities for inclusive economic development.

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“…The sources of the Wenzhou Index are deemed representative and comprehensive in capturing the full range of informal financial transactions within Wenzhou, China. Furthermore, the index's data has the potential to provide insight into informal financial activities in other regions or countries (Cheng et al, 2022 ).…”

Section: The Setup Of Variables and Theoretical Frameworkmentioning

confidence: 99%

The impacts on informal financing strategy of small and micro enterprises by interest rate risks and public health emergencies

Huang³

et al. 2023

Int Entrep Manag J

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Informal finance is a crucial financing method for small and micro enterprises (SMEs) in most developing countries. Interest rate risks (IRS) should be a vital component of SMEs' informal finance strategies (IFS), and public health emergencies (as COVID-19) is likely to modify IFS due to increased liquidity risks for SMEs. This article examines the relationship between IRS and IFS and its moderated effects by COVID-19. The study develops a structural equation model of SMEs' IFS to investigate SMEs' IFS, the causal relationship between IRS and SMEs' IFS, mediator effects of SMEs' corporate financial status and regional financial and economic conditions, and moderating effects of SMEs' variables. The empirical data is from Wenzhou, China, distributed between 2016 and 2021. The study concludes that IFS will continue to be a financing technique for Chinese SMEs, even if it may have a deterrent effect due to COVID-19. Additionally, there is a strong positive causal association between IFS and SMEs' IRS, as well as moderator and mediator effects. Recommendations for government policy include clarifying the connection between SMEs' IFS and influencing variables, providing scientific and methodical analysis tools for evaluating factors impacting SMEs' IFS, and encouraging the optimization and upgrading of SMEs' IFS.

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Formalize the informal: market segmentation and integration in the formal and informal credit markets in Wenzhou

Cited by 3 publications

References 18 publications

Entrepreneurial financing: how global and regional export intentions affect financial and non-financial choices for small and midsized enterprises in low-income countries

Entrepreneurial financing: how global and regional export intentions affect financial and non-financial choices for small and midsized enterprises in low-income countries

Impacts of financial development and green trade on the shadow economy: An insight of eagle countries using Bayesian approaches

The impacts on informal financing strategy of small and micro enterprises by interest rate risks and public health emergencies

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