Informal Financial Institutions Research Articles

Resilience and Dynamism of Embedded Financial Transactions in Cameroon

:Following the recent financial crisis, institutional economists have issued a “call” for institutionalist research on alternative financial systems. While suggestions have been forthcoming, (for example, in Volume 48, Issue 4 of the Journal of Economic Issues), most have centered on national-level innovations in advanced capitalist countries, prompting further calls for “community” and individual level anti-capitalist financial relations. With this article, we respond to such calls. We show how networks of finance in Cameroon bridge the formal/informal dualisms in lending/savings activities. We demonstrate that any debates about whether to formalize informal financial institutions or leave them alone weaken in Cameroon because, through networks, people access both formal and informal financial institutions for different purposes and at various stages in the life of these institutions. This dynamism explains why, in spite of the growth of money markets in Cameroon, informal financial institutions have not disappeared, nor declined. In fact, they have expanded, contrary to predictions in existing new institutional economics research. While informal institutions have evolved, they have not necessarily become formal banks, microfinance, or stock markets. Rather, the informal financial institutions have adopted and adapted in terms of both lending and saving practices in a country where growing formal financialization has become the norm. Our findings challenge neoclassical and new institutional economics theories about money, credit, and the actors in the money market.

Role of Equb in Financing Micro and Small Business Enterprises in Konso

The aim of this study was to assess the role of Equb in Micro and Small Business Enterprises finance in Konso. For this purpose, data was collected through questionnaire from Equb members as well as interviewing with Equb organizers and non Equb MSE owners. The respondents were selected using both proportionate stratified and random sampling techniques. Besides, the collected data were analyzed using descriptive narrations through concurrent triangulation strategy. The result revealed that, People joined Equb to dig up large amount of money, save and even get loans at the lowest interest. Banks/Micro Finance Institutions fail to cater for the saving and credit needs of poor and small business holders, mainly due to their lending terms and conditions of creating financial gap which informal financial institutions try to fill. In Konso, Equb dominates other sources in the finance establishment of Micro and Small Enterprises, expansion and their working capital finance, followed by personal saving, families and relatives.

The Impact of SMEs Financing on Business Growth in Nigeria: A Study of Keffi and Mararaba Metropolis

The impact of SMEs financing on business growth in Nigeria using Keffi and Mararaba Metropolis as a case study was assessed in this work. Descriptive research designs as well t-test statistics for the test of hypotheses were utilized. Hypotheses applied for the study includes: banks credits to SMEs have no significant impact on growth of Nigeria economy as well as interest rates charged on credits has no effect on SMEs business expansion in Nigeria. Access to finance was found to be sine qua non for successful entrepreneurial development while in respect of interest rate charged on SMEs loans and advances; the entrepreneurs’ ability to borrow was not hindered. The study therefore recommends strong availability to finance for successful growth of SMEs through different channels like microfinance banks and institutions in addition to formal and informal financial institutions. In addition, the scheme could be further expanded vide various tax palliatives. It is also recommended that the government should provide suitable incentives for the growth and effective performance of SMEs. There should also be close liaison between Nigeria Stock Exchange and family business to raise cheap funds for the growth of SMEs.

Social Capital and Access to Credit: Evidence from Uganda

We use a nationally representative survey in Uganda to study the links between social capital and financial access. Our results indicate a positive association between individual social capital and access to institutional credit, but no significant relationship between generalised trust and credit access. The effect of individual social capital is more pronounced for poorer people, in rural areas, and in areas where generalised trust is low. Individual social capital seems to promote access especially to semiformal and informal financial institutions.

Informal Financial Institutions (IFIs) and Poverty Reduction in Konshisha Local Government Area of Benue State, Nigeria

This study was carried out to examine the impact of informal financial institutions (IFIs) on poverty reduction in Konshisha local government area of Benue State, Nigeria. A total of 220 questionnaires were administered to households in the study area; 110 each for beneficiaries and non-beneficiaries of informal financial institutions (IFIs) in the study area. Data collected were analyzed using P-Apha, logit regression model, simple percentages and T-test statistics. The result showed that the incidences of poverty (po), depth (P1) and severity (P2) were found to be worse among the non-beneficiaries of IFIs. The result of T-test of difference in mean of real household consumption-Expenditure of beneficiaries & non- beneficiaries of IFIs also indicated clearly that beneficiaries of IFIs have more real household consumption expenditure than non-beneficiaries of IFIs in the study area. The result of the Logit regression model showed that out of the seven variables regressed, only three namely: averages monthly savings, education & household size have influenced significantly the poverty status of the respondents at 5% level. The study identified shortage of funds for disbursement to members as the major problem hindering the smooth operation of IFIs in the study area. It was suggested among other recommendations that government and other relevant organizations should provide soft loans to members of IFIs through the IFIs in which they belong to expand their small businesses and hence reduce their poverty level.

Determinants of Financial Literacy among the National University of Lesotho Students

As per the results gender is important in determining the level of financial literacy among NUL students. Consistent with literature, the results indicate that NUL male students are more financially knowledgeable than their female counterparts. This may be due to the fact that male students, on average, are the ones with less fear of engaging in financial commitments like borrowing from informal financial institutions. They, therefore, in the process get to acquire financial knowledge. In the similar vein, major of study by the respondents was also found important in determining the level of financial literacy among NUL students. However, place of residence was found to have little or no impact on the level of financial knowledge. Age was also not found to have a considerable impact on the level of financial literacy among the students. This could be due to the fact that the students, on average, are of the same age category and hence lack of age variation. To bridge the gap between financial literacy level of male and female students as well as business major and non-business major students, the ministry of education and training should consider introducing financial education into the core curriculum of secondary, middle level and higher learning institutions. Over and above improving financial literacy of students in Lesotho, that would also lead into a financially literate nation in the long run, a condition which could spur productive financial climate on a macro level.

Revisiting the theory of social capital through the financing of microentrepreneurs in Cameroon using fuzzy decision tree and QFD

The purpose of this study was to determine the networks of financing generated by social capital for informal microentrepreneurs in Cameroon and the extent to which they are important. The data collected and used were secondary and were from an employment survey done between 2005 and 2010 by the National Institute of Statistics. Percentages and ordinary least square regression were used to carry out descriptive and explanatory analyses respectively. The results showed that the social capital enables informal microentrepreneurs to get access to a diversified network of financiers made up of formal, informal financial and non-financial institutions. It was clear that the higher the social capital, the more microentrepreneurs use informal sources to get access to finances. It was equally revealed that social capital significantly explained the financing of microentrepreneurs within the area and scope of study. Based on these findings, we recommend that the government should put in place a regulatory framework facilitating the development of specific institutions in charge of financing the informal microentrepreneurs in Cameroon.

Studying the Effect of Privatization on Employees’ Job Satisfaction in Communication Center (A Case Study in Kerman (Iran) Province)

The development of Small and Medium Enterprises (SMEs) in Indonesia showed a tendency has increased along with improvement of the national economy. Indonesia together with India and China are the three countries in the world who have the highest economic growth within the last 3 years. However, SMEs are still confronted with basic problems such as the limited access to the sources of financing from formal financial institutions, particularly from the banks. This problem causes them to rely on informal sources of financing. Currently, the informal financial institutions are more striking among SMEs because it is more flexible, for example in terms of requirements and the amount of loans that are not as tight as banking. This makes informal financing institutions increasingly popular among small and medium entrepreneurs. One of them that is quite close with SMEs is Islamic Microfinance Institutions or commonly known as Baitul Maal wa Tamwil (BMT). However, both the BMTs and SMEs have difficulties in cooperating each other mainly related to the mastery of information technology to improve efficiency in managing transactions under Shariah (islamic law)-based business contracts. Therefore, the authors urge that the need for accounting information systems to facilitate the contracts. This paper aims to discuss the urgency of drafting a framework for information systems for BMTs to support the operations of partnership contracts. This paper proposes the use of Open Source Software (OSS) as the basis for developing a system that is technically cheaper, more efficient and easy to implement.

The Need for Accounting Information System to Facilitate Partnership Contracts in Islamic Microfinance Institutions: The Case of Baitul Maal wa Tamwil (BMT) in Indonesia

The development of Small and Medium Enterprises (SMEs) in Indonesia showed a tendency has increased along with improvement of the national economy. Indonesia together with India and China are the three countries in the world who have the highest economic growth within the last 3 years. However, SMEs are still confronted with basic problems such as the limited access to the sources of financing from formal financial institutions, particularly from the banks. This problem causes them to rely on informal sources of financing. Currently, the informal financial institutions are more striking among SMEs because it is more flexible, for example in terms of requirements and the amount of loans that are not as tight as banking. This makes informal financing institutions increasingly popular among small and medium entrepreneurs. One of them that is quite close with SMEs is Islamic Microfinance Institutions or commonly known as Baitul Maal wa Tamwil (BMT). However, both the BMTs and SMEs have difficulties in cooperating each other mainly related to the mastery of information technology to improve efficiency in managing transactions under Shariah (islamic law)-based business contracts. Therefore, the authors urge that the need for accounting information systems to facilitate the contracts. This paper aims to discuss the urgency of drafting a framework for information systems for BMTs to support the operations of partnership contracts. This paper proposes the use of Open Source Software (OSS) as the basis for developing a system that is technically cheaper, more efficient and easy to implement.

Informal credit institutions in transition countries: a study of urban money lenders in post-communist Uzbekistan

Research on informal financial institutions in transition economies is scant. This study investigates behaviour of urban money lenders in Uzbekistan. Money lending in Uzbekistan is a relatively new business which emerged mostly in response to targeted demand from fellow entrepreneurs during transition. We find that their lending behaviour is more stringent than suggested by previous studies of rural money lenders. They always require collateral, do not engage with the poor and avoid lending for consumption purposes. Their lending is short-term and targeted on specific business opportunities which enjoy healthy cash flows and offer quick returns. They have limited outreach from serving networks of connections within small geographical localities. Since they rely exclusively on their own resources for loanable funds, they often have to ration their loans. They actively use all available information and instruments to reduce default risks. Although borrowers live in closer geographical proximity to lenders in urban areas, they are also engaged in various heterogeneous activities and are more self-reliant with respect to the local community, which reduces the accuracy of money lenders' assessment of the character of borrowers as well as of their ability to repay.

An evaluation of financial institutions: Impact on consumption and investment using panel data and the theory of risk-bearing

The theory of the optimal allocation of risk and the Townsend Thai panel data on financial transactions are used to assess the impact of the major formal and informal financial institutions of an emerging market economy. We link financial institution assessment to the actual impact on clients, rather than ratios and non-performing loans. We derive both consumption and investment equations from a common core theory with both risk and productive activities. The empirical specification follows closely from this theory and allows both OLS and IV estimation. We thus quantify the consumption and investment smoothing impact of financial institutions on households including those running farms and small businesses. A government development bank (BAAC) is shown to be particularly helpful in smoothing consumption and investment, in no small part through credit, consistent with its own operating system, which embeds an implicit insurance operation. Commercial banks are smoothing investment, largely through formal savings accounts. Other institutions seem ineffective by these metrics.

The Analysis of Informal Credit Behavior in Hui Autonomous Prefecture of Linxia: The Investigation Based on Hui Autonomous Prefecture of Linxia China

Nowadays, the informal credit, the financial form which the access to the loan capital derived from Informal financial institutions, and it plays the important role on the economic activity, and have a profound impact on the development of local finance. Through the roundly questionnaire survey in the Hui autonomous prefecture of Linxia to understand the present conditions, reasons and purposes of the region's informal credit, and analyze the problems arise during the development of informal capital raising, and finally propose the policy advice to promote the development of informal capital raising.

The Problems and Prospects of Informal Financial Institutions in Financing Agricultural Sector in Nigeria

The informal finance has been a major source of finance from ages long even before the introduction of modern banking system. But its major function is in the provision of informal finance to agricultural sector. The study examines the problems and prospects of informal financial institutions in financing agricultural sector in Nigeria using Ado-Ekiti and Oye-Ekiti Local Government Areas of Ekiti State, Nigeria as case study. This study examines the effect informal finance has on the activities of agriculture in Nigeria. The methodology employed was descriptive and data were collected using personal oral interviews and questionnaires which were distributed to the respondents. The data collected were presented and analyzed using percentages and tables. The use of chi-square was also employed for better understanding. The findings from the study revealed that informal financial institutions’ activities have a significant effect in financing agriculture. It also revealed that financial constraint is not the major constraint faced by informal financial institutions in financing agricultural sector. Other problems include lack of storage facilities and the use of crude tools, just to mention but a few. Despite these problems, it is noted that the informal financial institutions if properly monitored have many goodies to offer for improved productivity of the agricultural sector of the country. As a result of the problems faced by the informal financial institutions in financing agriculture, it is recommended among others that there should be more of governmental and financial support to the agricultural sector so as to enhance development, create enabling environment and there is a need for informal financial institutions to improve in their financing function to the sector. It is concluded that informal finance is the “life wire” of agricultural sector.

Banks versus Informal Financial Institutions: An Investigation into Financial Services by Households in Ghana

Banks have continued to close their rural branches whiles setting up new urban branches in Ghana. Some studies have concluded this trend is due to reorientation towards serving big businesses in urban areas. Numerous informal financial institutions have also emerged at the same time in rural areas. These changes in the financial market are likely to affect the financial services available to households, their preference and demand for these services. Using the Ghana Living Standard Survey data, estimations from Tobit model show that the sources of financial services significantly affect the financial services obtain by households. Conditional logit model results suggest when alternatives are available, rural households are more likely to obtain their financial services from the informal financial market. Pooled cross-section estimations indicate the demand for financial services by households is changing overtime. These results suggest banks are being competed out of business in the rural areas by informal financial institutions leading to their continued closure of rural branches.

Rural credit markets in South Africa: A review of theory and empirical evidence

The demand for and supply of financial services in general and credit instruments in particular by rural South Africa still remains a confounding problem. The aim of this paper is to determine the status of rural credit markets in South Africa by reviewing theory and evidence from empirical studies. It is observed that financial markets in South Africa are fragmented between formal and informal markets. Formal financial markets generally serve urban and peri-urban areas with a thin distribution of services to people living in rural areas. Rather, informal financial institutions such as savings clubs (stockvels), co-operatives, moneylenders (mashonisas) and village banks are the more dominant providers of financial services. Commercial banks and other formal financial institutions cite high operating costs such as information gathering, monitoring and enforcement as some of the reasons for limited participation in rural financial markets. Such attitudes have been observed to retard entrepreneurial innovation and growth among small to medium size enterprises and smallholder farmers. Results of this analysis have policy implications in the areas of reduction of unemployment, poverty and sustainable economic growth in South Africa. Policies directed at increasing financial intermediation via formal financial institutions are recommended

マイクロファイナンスとインフォーマル信用制度の相互作用について

マイクロファイナンスとインフォーマル信用制度の相互作用について

Book Reviews

Gregory Elliehausen of Board of Governors of the Federal Reserve System reviews, “No Slack: The Financial Lives of Low-Income Americans.” by Michael S. Barr. The Econlit abstract of this book begins: “Eleven papers explore the financial constraints and choices of low-income families and examine the ways that low-income families use services through both formal and informal financial institutions, focusing on households in the Detroit area. Papers discuss managing money; banking for all; preferences for plastic; which way to the bank?; borrowing to make ends meet; high-cost homeownership; living on the edge of bankruptcy; expensive tax refunds; paying to save; behaviorally informed regulation; and crisis and reform. Barr is Professor of Law at the University of Michigan Law School.”

An Analysis of Non-Performing Assets and Recovery Performance of Self Help Group Bank Linkage ProgrammeUnique Preference to North Eastern Region of India

Access to financial markets is important for poor people. Like all economic agents, low-income households and microenterprise can benefit from credit, saving and insurance services. But financial markets, because of their special features, often serve poor people badly, since poor people often have insufficient traditional forms of collateral such as physical assets to offer. But the case of informal financial institutions is different as they have greater alternatives to accept as collaterals such as labor of the borrowers. Thus the poor generally excluded from the formal financial institutions and have to depend on informal sector. Microfinance is gathering impetus to become a significant strength in India. The Self Help Group model with bank lending to groups of poor women without collateral has become an accepted part of rural finance. In spite of being successful, there are still disparities in the program in its level of progress across different parts of the country, including the north east India (NER). The SHGs-BLP was concentrated among the southern states (SR) and its performance was not satisfactory among the NE states. The SR achieved higher amount of saving balance of SHGs with banks in comparison with NER. Similarly, the amount of loan disbursed to SHGs by banks was also higher in SR. Thus naturally one point come to mind is that, does amount of NPAs is lower and recovery performance is satisfactory in NER compare to SR. In this paper we analyzed the NPAs and recovery performance of SHGs in SR and NER of India. The researcher studied the same by taking four years data of NABARD. We found that although amount of saving balance of SHGs with banks and amount of loan disbursed to SHGs by banks was lower in NER in compare with SR, but the share of NPAs to total loans outstanding was higher and percentage of recovery to demand of total SHGs was lower in NER. In recent times there has been an improvement of situation of NPAs and recovery rate in NER. However this enhancement was not comparable with SR of India. Consequently, one point come to mind is that, does because of higher NPAs and lower recovery rate, SHGs-BLP had not achieved reasonable achievement in NER of India.

The Impact of Financial Access on Firm Growth: Evidence from Ethiopian Grain Traders and Millers

Although both formal and informal financial institutions exist in developing economies, firms are often constrained by lack of access to financial services. Grain traders and millers in Ethiopia need a lot of finance to pay their suppliers (e.g. farmers) but it is not clear whether or not which sources of credit matter most for their growth and expansion. Using firm survey data collected for the purpose, we assessed access to and the impact of different sources of finance on growth of traders and millers in Ethiopia. Descriptive and econometric methods (e.g. ordered probit) were employed to address the issue. The results indicate that both formal and informal sources of credits are accessed by a small number of firms on a sporadic basis. With credit from commercial banks is mainly channeled to large businesses while microfinance institutions (MFIs) are designed to assist small and micro enterprises as part of a poverty alleviation strategy, medium firms such as most grain traders and millers have limited access to finance. Bank or MFI credit was found to have no impact on growth and expansion in the econometric analysis. Access to informal credit is also limited and largely used to meet short-term emergency cash requirements. Without improved and regular access to finance, grain traders and millers cannot make the necessary investment to provide effective marketing services for the transformation of agriculture. Key words: finance, financial access, Growth, Grain, Grain traders and millers, Ethiopia

Financing the start-up and operation of immigrant-owned businesses: The path taken by African immigrants in the Cape Town metropolitan area of South Africa

Drawing a sample of 135 successful African immigrant-owned businesses, this paper sets out to investigate how their owners acquired the necessary capital for start-up and growth thereafter. The paper was designed within the quantitative and qualitative research paradigms, in which a triangulation of three methods was utilised to collect and analyse the data. The paper revealed that although African immigrants are characteristically at the disadvantage when it comes to accessing capital from formal financial institutions, this does not stop them from pursuing entrepreneurial activities. At the start-up stage, they typically resort to personal savings, business credit, family credit, and loans from informal financial institutions. According to the ability to raise capital, we found that a varying range of start-up capital was utilised, which tended to vary across the different ethnic groups studied. Once started, we found that the sources of additional finance available to these immigrants did not change significantly. They conventionally turned to friends, co-ethnics and self-help financial associations to ‘feed’ their need for further funding.