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

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.