Abstract
AbstractEconomists have observed that informal credit markets may mitigate micro‐entrepreneurial rationing in formal credit markets. While informal credit markets may have that effect, the uniformity and magnitude of the mitigation is not apparent. We analyse micro‐enterprise credit rationing on the Pine Ridge Indian Reservation in the United States. We find that micro‐entrepreneurs have virtually no access to formal credit markets and that informal credit markets have differential impacts on micro‐entrepreneurs' rationing in formal credit markets. Informal markets appear to ease credit rationing the most for the mid‐size micro‐enterprises in our sample, with the smallest and largest micro‐enterprises still facing severe rationing constraints. We also find that micro‐enterprises of all sizes face a positive probability of credit rationing. Copyright © 2006 John Wiley & Sons, Ltd.
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