Informal finance: A theory of moneylenders

Madestam, Andreas

doi:10.1016/j.jdeveco.2013.11.001

Cited by 121 publications

(68 citation statements)

References 52 publications

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“…Recently, several researchers connect two above-mentioned literature lines to examine the effect of institutional quality on financial inclusion. Madestam (2014)…”

Section: Literature Reviewmentioning

confidence: 99%

The Effects of Institutional Quality on Formal and Informal Borrowing Across High-, Middle-, and Low-Income Countries

Khanh

2019

SSRN Journal

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“…Recently, several researchers connect two above-mentioned literature lines to examine the effect of institutional quality on financial inclusion. Madestam (2014)…”

Section: Literature Reviewmentioning

confidence: 99%

The Effects of Institutional Quality on Formal and Informal Borrowing Across High-, Middle-, and Low-Income Countries

Khanh

2019

SSRN Journal

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“…Informal lending social network is frequently adopted to study the effect of social capital or trust on risk sharing behavior among rural households. With a theoretical framework, Madestam shows that formal and informal lending channels can coexist in underdeveloped credit markets [31]. This phenomenon also proved with empirical findings and an extreme case shows that there are even as high as 95% of all very poor borrowers access credit from informal channels when banks are available in Hyderabad, India [14,18,19,32,33].…”

Section: Literature Reviewmentioning

confidence: 75%

Social Trust Formation and Credit Accessibility—Evidence from Rural Households in China

2020

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Trust as a form of social capital plays an important role in improving the cooperation between agents, especially in credit lending activities. Trust building has attracted significant research interest, and gift giving has been shown to be one of its main drivers. Nonetheless, the mechanism of gift giving in the formation of trust networks and the channels through which gift giving and trust affect cooperation require further investigation. In this paper, we first separate social trust into community trust and personal trust, and we examine how gift giving affects the formation of each level of trust. We then explore how trust and gift giving affect rural households’ access to formal and informal sources of credit. Our results show that gift giving mainly helps in forming trust at the personal level rather than the community level. In turn, personal and community trust can facilitate access to informal and formal sources of credit, respectively. In addition, personal trust facilitates access to informal loans for consumption and medical expenses but not production. Overall, our findings show that gift giving is mainly used to build personal trust which facilitates access to informal lending for risk-sharing purposes.

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“…Most businesses have at least access to informal sources of finance such as moneylenders or family and friends. Research shows, however, that informal financial institutions co-exist with microfinance and play a complementary role in the formal financial sector, offering small, unsecured, short-term loans (Ayyagari et al, 2010;Guirkinger, 2008;Madestam, 2014). Microfinance's promise to create wage-employment by enabling investments in profitable business opportunities therefore seems independent of the existence of an informal financial sector.…”

Section: Credit Constraints For Small Firms In Bulgariamentioning

confidence: 99%

Microfinance beyond self-employment: Evidence for firms in Bulgaria

Erhardt¹

2017

Labour Economics

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This paper provides new evidence on the impact of microfinance on job creation beyond selfemployment. We examine wage-employment effects for a typical program in Eastern Europe with average loan sizes that are considerably above what has been studied so far. We apply propensity score matching extended by a difference-in-differences estimator to panel data from an individuallending program to firms in Bulgaria. Our results indicate that microcredit has very positive effects on job creation. Participating firms have on average 2.5 (or 33 percent) more employees two years after receiving a microcredit than matched non-participants. This strong effect seems to be related to a certain loan size threshold necessary for positive impacts to unfold. Effects are largest for the smallest firms, supporting findings from other studies that small firms are more constrained by credit than large firms. Investigating dynamic effects for up to six years after treatment, we furthermore show that effects are long lasting.

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Informal finance: A theory of moneylenders

Cited by 121 publications

References 52 publications

The Effects of Institutional Quality on Formal and Informal Borrowing Across High-, Middle-, and Low-Income Countries

The Effects of Institutional Quality on Formal and Informal Borrowing Across High-, Middle-, and Low-Income Countries

Social Trust Formation and Credit Accessibility—Evidence from Rural Households in China

Microfinance beyond self-employment: Evidence for firms in Bulgaria

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