Research / BFI Working PaperJan 23, 2023

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

Rimmy Tomy, Regina Wittenberg-Moerman

Traders operating in informal economies rarely use financial information in their credit allocation decisions. Using a combination of survey questions and a hypothetical choice experiment, we study the frictions impeding traders’ financial information use in a bazaar economy. Based on estimates of wholesalers’ willingness to pay for retailer information, we find that 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. We also show that traders use financial information sparsely not because of financial illiteracy, but because they perceive such information to be unreliable.

More Research From These Scholars

BFI Working Paper Sep 29, 2021

Community Membership and Reciprocity in Lending: Evidence from Informal Markets

Rimmy Tomy, Regina Wittenberg-Moerman
Topics:  Financial Markets
BFI Working Paper Feb 8, 2023

Bank Supervision and Managerial Control Systems: The Case of Minority Lending

Byeongchan An, Robert Bushman, Anya Kleymenova, Rimmy Tomy
Topics:  Financial Markets
BFI Working Paper Jun 5, 2024

Banking on Trust: Supervisory Transparency and Depositors’ Actions

Abhiman Das, Tanmoy Majilla, Rimmy Tomy
Topics:  Monetary Policy