Informal Financial Services Research Articles

Low-income consumers’ informal and formal financial service experiences: perceptions of access, inclusion, and social dependence

Purpose Low-income consumers’ perceptions of access and inclusion in financial services, remain underresearched. To fill this gap, the purpose of this study, is to investigate elements of low-income consumers’ informal and formal financial service experiences, from their personal experience. Design/methodology/approach Mixed methods using data collected from low-income consumers in Latin America, reveal a spectrum of consumer perceptions making up access, inclusion and social dependence within financial service experiences. Scales, grounded in the consumer experience, are developed, validated and used to test a model of consumers’ service inclusivity perceptions. Findings Service costs, information and documentation difficulty, convenience and social dynamics influence low-income consumers’ perceptions of financial service inclusivity. Research limitations/implications Analysis reveals differentiation in the impact of aspects of low-income consumers’ experiences between formal and informal financial services. Working directly with this unique population exposes the nuance of their financial service experiences. Practical implications This research provides a more holistic perspective on low-income consumers’ financial service experience and provides contextually relevant scales with robust psychometric properties. Services marketers can use this research to inform design and evaluation of financial service offerings for low-income consumers. Originality/value This research contributes to study of the wellbeing of low-income consumers by providing understanding of their financial service experiences from their point-of-view and providing contextually-relevant, empirically validated tools for future inquiry.

The Mediating Effects of Financial Service Usage on the Relationship between Financial Literacy and Retirement Preparedness in the Cameroon Informal Sector

The last decade has witnessed significant research interest in the area of financial literacy with specific attention on poverty. However, based on evidence of over 80 papers published since 2014 by the Consultative Group to Assist the Poor, it was revealed that there is no significant comprehensive explanation of how the usage of financial services improves people’s financial satisfaction at retirement. To this effect, this study sought to examine the extent to which the usage of both formal and informal financial services affects the retirement preparedness of people engaged in the informal sector of Cameroon. In light of this, the study aimed at justifying the continuous utilization of informal financial services at the expense of formal financial services even when financial service users have access to formal financial services. The study examined individual levels of investment literacy, cash-flow management literacy, credit management literacy, and the usage of formal and informal financial services. The study used the geographical clusters to proportionately select 400 economically active users of financial services from the seven sub-divisions of Yaoundé. Survey data were quantitatively analyzed to test the statistical relationships using the Covariance-Based Structural Equation Model [CB-SEM] with the aid of SPSS and AMOS 24 statistical packages. Findings indicated that the usage of formal financial services and informal financial services hace positive significant statistical effects on retirement preparedness. Also, the study finds that the usage of formal financial services and informal financial services has positive significant mediating effects on financial literacy and retirement preparedness. The study thus proposes the implementation of a dualistiec financial inclusion model that recognizes that both the formal and informal financial services are beneficial in the improvement of individual’s retirement preparedness in the informal sector of Cameroon and as well as in the context of developing countries.

How informal financial service institutes facilitate the financial inclusion of low-income, unbanked consumers

PurposeThe present study aimed to provide an understanding of the roles of community-based financial service organizations (i.e. rotating savings and credit associations [ROSCAs] as institutional pillars in facilitating low-income, unbanked consumers’ access to informal financial services).Design/methodology/approachSemi-structured interviews were conducted with 39 low-income, unbanked consumers participating in ROSCAs in Pakistan, where only 21% of adults have a bank account and almost four out of five individuals live on a low income. The obtained data were analyzed using the thematic analysis technique.FindingsROSCAs’ regulatory, sociocultural and cognitive aspects facilitate low-income, unbanked consumers’ utilization of informal financial services owing to their approachability by, suitability for, and fairness to such consumers. Thus, they promote such consumers’ financial inclusion.Practical implicationsLow-income consumers are mostly unable to access formal financial services due to the existing supply- and demand-side impediments. Understanding ROSCAs’ institutional functioning can help formal financial service providers create more transformative financial services based on the positive institutional aspects of ROSCAs to enhance poor consumers’ financial inclusion and well-being.Social implicationsThe inclusion of low-income, unbanked consumers in formal banking services will help them better control their finances.Originality/valueMany low-income, unbanked consumers in developing countries utilize informal financial services to meet their basic financial needs, but service researchers have rarely investigated how informal financial institutions function. The present study showed that ROSCAs, as informal institutions, meet low-income, unbanked consumers’ personal, social and financial needs in a befitting manner, which encourages such consumers to use the financial services offered by ROSCAs.

Financial inclusion, vulnerability coping strategies and multidimensional poverty: Does conceptualisation of financial inclusion matter?

AbstractPolicy emphasis on financial inclusion and deepening has shifted away from measures capturing formal financial services only and towards the development of more inclusive financial markets which account for both formal and informal services. This study examines the effect of financial inclusion and vulnerability coping strategies on multidimensional poverty, where the conceptualisation of financial inclusion is based on four perspectives—(i) one that focuses on only the formal financial sector, (ii) another that concentrates on only the informal financial sector, (iii) one that considers only the mobile money sector and (iv) finally, one that combines all financial markets (i.e., formal and informal including mobile money). Findings show that the conceptualisation of financial inclusion does not only matter in identifying the financially included but also has an implication on how financial inclusion influences multidimensional poverty. Financial inclusion measures that use only formal financial products and services understate their potential effects on multidimensional poverty, thus, justifying the need for a financial inclusion measure that considers both formal and informal sectors. Incorporating informal financial products and services in the measure reduces multidimensional poverty more for female‐headed households and those in rural settings. Households' adoption of vulnerability coping strategies has the potential to reduce the likelihood of being multidimensionally poor.

Financial dualism: An analysis of the effects of informal finance on formal finance in West African Economic and Monetary Union (WAEMU) countries

AbstractThis paper analyzes the effects of informal finance on formal finance in West African Economic and Monetary Union (WAEMU) countries. To this end, it uses a Probit model with a binary endogenous regressor and data from the Global Findex database, 2021. The findings indicate that having already saved informally positively affects the behavior of individuals to save formally. They also indicate that informal financial credit positively affects formal financial credits in the WAEMU. These findings indicate that formal finance is complementary to informal finance in the WAEMU. On the other hand, the findings show that labour force participation, mobile banking use and online banking use increase the likelihood of use of formal and informal services in the WAEMU. This paper suggests that formal financial institutions (mainly banks and microfinance institutions) should strengthen their collaboration with actors (money keepers, itinerant bankers, tontines systems) involved in the provision of informal financial services to populations in order to improve formal financial intermediation in the WAEMU.

Financial Inclusion and its Determinants: Empirical Evidence from South Asia

ABSTRACT: South Asia, the home to around one-fourth of the world's total population, and the fastest-growing region of the world, achieved an annual average GDP growth rate of 6.6 percent in 2015–2019. During the same period, it also demonstrated a modest share of gross domestic savings and fixed capital formation to GDP. The region has also experienced a considerable success in improving its level of financial inclusion. Within a span of only six years, the number of adults having an account in a formal financial institution increased to 38 percentage points in 2017, though large heterogeneity across countries exists. Despite these economic and financial developments, around half of the world's multidimensionally poor people live in this region. The region is also relatively less inclusive than those of high-income countries, as it excluded 30 percent of its adult population from the formal financial system in 2017. To accelerate its ongoing economic development and poverty reduction, further improvement of the level of financial inclusion is a particular concern in South Asia. However, we know very little about factors influencing financial inclusion in this region. In this paper, we examine the determinants of financial inclusion in South Asia using the World Bank's Global Findex database for the year 2017. Our probit estimations show that being a male, richer, more educated, and older are associated with higher levels of formal account and formal saving. While age and education affect formal credit in a similar manner, we find no significant association between gender and income level with formal credit. We also investigate how individual characteristics are associated with the barriers to financial inclusion and find that women exclude themselves from financial inclusion because other family member might have an account. Documentation and having accounts by other family members are the main factors of financial exclusion of the younger people, while cost and religious reasons discourage older people from having a bank account. Finally, we compare the determinants of informal financial services with those of formal financial services. Our findings have certain policy implications to include financially excluded people, i.e. poor, less educated, youth, and women, into financial network vis-à-vis promoting financial inclusion in South Asia.

GROWTH OF SHGS AND EMPOWERMENT OF WOMEN

Micro finance through Self Help Group (SHG) has been recognized internationally as the modern tool to combat poverty and for rural development.Micro finance and SHGs are effective in reducing poverty,empowering women and creating awareness which finally results in sustainable development of the nation.Micro finance define as efforts to improve poor people's access to loans and saving services may be the fastest growing and most widely recognized anti-poverty too. Micro finance includes basic financial services including small loans,savings accounts,funds transfers and insurance.A long side non-financial service such as business training Micro finance assists people living in poverty who wouldn't usually qualify for regular banking services because they have no form of collateral or formal identification.An attempt is made here to examine the impact of the microfinance on the development of the Self-Help Groups in India. The total number of self-help groups which have maintained savings with banks is 100 lakhs during 2018-19 but only 26.98 lakhs i.e 26.95 percent of the SHGs have obtained credit from the financial institutions.Out of 74.62 lakh SHGs,only 11.96 lakhs i.e. 16.03 percent of the SHGs have got micro-credit from the institutional credit agencies during 2010-11. The above analysis indicates that the number of SHGs which got micro credit has increased from 16 percent to 27 percent i.e only 11 percentage points increased in 2018-19 over 2010-11.About 73 percent of the SHGs are out of the purview of the public financial institutions. Majority of the women members of SHGs are away from the institutional credit agencies. These marginalized women have to depend on informal financial services for their credit needs. So that the financial informal sector (mostly moneylenders)has continued to rule in the rural economy.There is a need to break the monopoly of door step availability of credit to these marginalized sections by the informal sources of credit.The credit needs of the women members have enormously increasing for the last two decades.The average loan disbursement per SHG has increased from Rs.1.22 lakhs during 2010-11 to Rs.2.16 lakhs during 2018-19.This is inadequate to meet the credit requirements of the members in the SHGs.Hence it should be made four to five times of the micro credit per SHGs.The bank loans are not regularly paid by the members of the SHGs. Hence, the amount of loan outstanding has continuously increased since 2010-11.It is evident from the fact that the average outstanding bank loans against SHGs shows higher level.The average outstanding per SHG has increased from Rs.65,224 during 2010-11 to Rs.171543 during 2018-19,shows two and half-fold increase. As a result of it the overall NPA rate in bank loan to SHGs is steadily increasing since 1910-11. However, the overall NPA rate in bank loan to SHG is 5.19 percent as on 31-03-2019 registering a fall of 93 basis points from the previous level of 6.12 percent.The above analysis reveals that the steady declining the rate of NPA is indicating the recovery of loans made of SHGs is improving during the last few years

Impacto empírico do acesso a serviços financeiros na renda dos agricultores em Gana

ABSTRACT: The impact of access to financial services (AFS) and access to informal financial services (AIFS) on farmer income is examined in this study. After a multi-stage random sampling procedure, the study used a sample size of 478 people from two regions in Ghana. The endogenous treatment regression (ETR) model was used to account for selection bias while the unconditional quantile regression (UQR) model was used for a heterogenous analysis. The findings showed that education, financial literacy, IT access, farm size, and distance were all factors of access to financial services. Similarly, the findings revealed a positive and statistically significant link between household income and access to formal financial services. Similarly, there was a positive and significant association between access to informal financial services and household income. The findings showed that access to formal and informal financial services has different effects on household income. As a result, the effects of access to financial services on income varied by quantile. Based on the findings of the study, we developed policies to boost financial services accessibility as a means of increasing household income.

The role of formal and informal remittances as the determinants of formal and informal finan-cial services

Research background: The choice of financial services and remittances are important as they influence the livelihood of remittance recipients, who are mostly poor and financially excluded. In literature, extensive evidence suggests a positive impact of the size of remittances on access to financial inclusion and financial development of remittance-recipient countries. However, a concern of such studies is that they might provide a biased outcome as the available data of remittances tend to be formal, whereas informal remittances are difficult to observe. Hence, their evidence might not be applicable in developing countries where remittance transfer via informal channels is very popular. Purpose of the article: The main objective of this study is to examine the effect of the remittance channel (formal and informal) on the choice of formal, informal financial services of credit and savings of remittance recipients. Methods: As our dependent variable is a financial service which is a categorical variable (formal and informal), the paper will employ a multinomial logistic regression model to estimate the impact. The data employed in this analysis is from the Finscope survey conducted in Myanmar in 2013 and 2018. Myanmar is the best context for our study, as it is one of a big migrant-sending countries and a developing country whose financial sector is significantly underdeveloped. Findings & value added: Our findings show that formal remittances promote the use of formal financial services such as credit and savings. However, there is no evidence regarding women recipients` informal channels and formal financial services. Our evidence also suggests there is a need for the government to encourage migrant workers to transform informal remittances into formal ones by removing the barriers of formal remittance channels to promote the use of formal credit and saving among remittance-recipients who are poor and financially excluded.

ROTATING SAVINGS AND CREDIT ASSOCIATION (ARISAN): IMPACT STUDY ON HOUSEHOLD-LEVEL ANALYSIS

Despite the fact that informal financial service is one of the most important alternative solutions for those in need yet do not have the capability to access the formal ones, its role is understudied. This study aims to analyze the impact of one of the informal financial services that have been developing within communities, rotating savings and credit association that is popular in term of arisan in Indonesia, on household economy measured by its spending on food and non-food. Using information from two latest data of Indonesian Family Life Survey processed with the difference in differences and matching methods, results show that household participation in the arisan is able to increase food and non-food expenditure after adjusted with inflation. Robustness checking through controlling several covariates shows consistent output sign and significances. It demonstrates that, statistically, arisan is able to improve its participant economic capabilities.

Alternative business finance: insights from selected informal savings groups in Uganda

PurposeThe study examined the nature of the operation of informal savings groups. Emphasis was on their composition, the mode of financial transactions and sharing of financial proceeds, the impact of the savings and members loaning on the members' financial and business growth, and the perception of the members on the benefits of the savings. The study also profiled the significant challenges encountered by the groups.Design/methodology/approachThe study adopted an exploratory research design. The point of saturation was achieved after 15 members of informal savings groups were interviewed. Data were analyzed using content analysis techniques with the aid of NVivo version 10 software, and verbatim tests were used to explain the emergent themes.FindingsThe findings indicate that informal savings groups are accessible, sustainable and inclusive financing alternatives for low-income earners. Group sizes range from 250 to 3 members. As a sign of commitment, a form of identification is required to join the group. Findings also indicate that group leaders are elected, and their term of service could be renewable. It was discovered that members join mainly to save in financial terms, and they have benefited both monetary and socially. The biggest challenge these groups face is that members default.Practical implicationsThe study provides evidence that informal financial service providers are an effective alternative to business financing that leverage existing social structures that are predominant in Uganda.Originality/valueThe study provides a benchmark for understanding the dynamics, capabilities and challenges impeding the survival and growth of informal savings groups as critical components in Uganda's financial system.

Brief Review of Informal Financial Services Typologies in Zambia: Investing in Sustainable Savings Groups

Informal financial services (IFSs) provide various types of investment avenues for both rural and urban populations in Zambia. This paper is a critical review of the sustainability of various informal investment typologies Zambians has been using and adopting to increase their financial resources and solve their livelihoods and social issues in the process. An evaluation of why people and organizations opt for specific financial services that come in the form of savings and lending groups will be discussed in detail to understand if they have been meeting people's expectations. The paper derives its data from various studies in the past 10 years that emanates from Zambia and Sub-Saharan Africa. While the sustainability of various typologies of informal financial services is broad, they are measured through risks associated, savings policies adopted, group loan guarantees and flexibility, interest and transactional expenses enforcement, income-generating, wealth creation and any social capital investment. The research reveals that limited studies have looked at various typologies of savings and lending groups, including evaluating their sustainability. This study helps in decision making for anyone or organization who would want to join or start a savings group in Zambia and key parameters to follow.

Leveraging the Post Office Network to Foster Financial Inclusion

Financial inclusion has become a topic of discussion in emerging and developing nations since the majority of people continue to lack access to either formal or informal financial services. In many countries, the post office is seen as a vehicle for financial inclusion due to its extensive network. In addition, with the decline in sales of their core business, traditional mail has exacerbated the need for the post office to venture into financial services whilst simultaneously answering the call to bridge the gap in society, especially for the un-banked and under-banked communities. Moreover, there is a need for post-offices to protect their long-term vitality as a business. This paper provides a theoretical perspective of financial inclusion, the role that the post office can play and the challenges preventing an effective rollout of financial services. This review can help postal managers, governments and policy-makers to understand how they can effectively use the post office to serve the un-banked communities. In addition, the study has enriched the academic discourse by providing literature on postal financial services and financial inclusion.

Small Entreprises Fundamental Problems in Bali Province

The problems faced by small businesses are closely related to a companion or facilitator in assisting. The lack of guidance makes it difficult for small businesses to develop. Based on the results of coaching and monitoring of 30 profiles of small business groups in Bali Province, there are several types of obstacles or problems that are often complained of by small business actors in the industrial sector in Bali Province, namely the low quality of human resources and the lack of entrepreneurial knowledge and competence resulting in everyday business and labor productivity. This can also be seen in the inability of business actors in terms of business management, especially in terms of recording/bookkeeping procedures. Many business actors also do not have a transparent legal entity, lack product innovation. Small businesses are considered to lack still knowledge of technology, management, information, and markets. Observing the problems faced by small businesses in the future, it is necessary to create a conducive climate, among others, by seeking peace and security in business and simplifying business licensing procedures, tax breaks, and so on. Government capital assistance needs to expand special credit with conditions that are not burdensome for small businesses to help increase their capital through the formal financial services sector, the informal financial services sector, guarantee schemes, and leasing venture capital funds. The government needs to improve training for small business actors in entrepreneurship, management, administration, and knowledge and skills in business development. Besides that, it is also necessary to apply the training results in the field to practice theory through the development of pilot partnerships.

Where are the development actors in protracted crises? Refugee livelihood and food security outcomes in South Sudan demonstrate the potential for fragile settings

This paper presents findings from a mixed-methods performance evaluation of United Nations High Commissioner for Refugees (UNHCR) livelihood programming in South Sudan, implemented between 2016 and 2018 and aimed at promoting refugee self-reliance in a fragile context characterized by protracted conflict and displacement. Utilizing a quantitative survey with a randomized sample of refugee participants (n = 406) in Maban and Unity refugee hosting areas, as well as qualitative interviews of 188 participants and other key informants, the study assessed the effect of livelihood interventions, as compared to the same support plus access to informal financial services through Village Saving and Loan Associations (VSLAs), on reported outcomes. The study finds that despite the challenges posed by the fragile setting, UNHCR-funded programming likely contributed to increased income, employment, savings, and assets for participants (though study design does not allow conclusive impact attribution). Further, statistically significant differences were found in livelihood and food security outcomes of refugees participating in combined livelihood training and VSLAs versus only training. Moreover, UNHCR activities reduced conflict with host communities. Whereas scalable impact and sustainability are limited by weak infrastructure, security, and enabling systems, this paper provides evidence of development impacts supporting inclusive economic development and peacebuilding in remote fragile areas, thus enacting ideals of the Humanitarian-Development-Peace Triple Nexus and the Global Compact on Refugees. We argue for the need for additional multi-stakeholder engagement from development, government, and private sector actors in enhancing refugees’ economic inclusion in this difficult context.

The Role of Formal and Informal Finance in Economic Development

There is an apparent assumption amongst policymakers despite evidence of heavy and increasing reliance on informal finance, the co-existence of formal and informal financial markets, and linkages between informal finance and economic outcomes that, formal rather than informal finance, is needed for economic development. The objective of this study is to examine the role of formal and informal finance in Economic Development. We use White Heteroscedasticity Adjusted and Two-Stage Least Squares Regression for the estimation, with measures of the regulatory framework for protecting financial consumers as instruments. We find that, while access to formal financial services has a positive effect on economic development irrespective of a country’s income status, access to informal financial services may positively or negatively affect economic development depending on its source. Further, while formal finance on economic development is positive irrespective of a country’s level of development, informal finance is unfavourable for high and middle-income economies. Our findings indicate that the policy choice of broadening access to formal rather than informal financial services is in the right direction. Policymakers should thus intensify efforts at expanding access to formal financial services for enhanced economic development. Nevertheless, policymakers should be mindful of the source contingent impact of informal finance on economic development.

Training vs. informal financial services for the promotion of financial literacy and inclusion in Uganda

Financial education aims to promote financial inclusion by increasing understanding and use of formal financial services. Despite such training, participation in informal financial practices remains high relative to formal ones in countries like Uganda. A cross-sectional sample survey of economically active urban financial service users is used to test whether financial education through formal training is associated with financial literacy (FL) and FL is associated with increased use of financial services, especially formal ones. The findings indicate that formal financial training is significantly associated with FL, and that higher FL is associated with higher use of both formal and informal financial services. The unexpectedly strong association of the use of informal financial services with financial literacy suggests that informal financial services may have a more complementary role than a simple model of financial formalization would imply. The study suggests that promoting informal financial services may be more efficient in raising financial literacy and inclusion than financial training.

Microinsurance and household asset welfare in South Africa

This paper examines the effect of microinsurance usage on household asset welfare, measured as asset accumulation index using a sample of 2006 households with access to formal non-banking and informal financial services from the 2015 FinScope Survey. Using the treatment effect and instrumental variable estimation techniques to account for endogeneity and selection biases, the empirical results support the hypothesis that microinsurance provides financial protection through asset accumulation to improve welfare. The findings are robust for different types of microinsurance products and weighted and unweighted asset accumulation indices. The policy implications of the findings are discussed.

EFFECTS OF SELECTED MACROECONOMIC VARIABLES ON DIASPORA REMITTANCES IN KENYA FOR THE PERIOD 1980 TO 2016

This study investigated the effect of selected macroeconomic variables on diaspora remittances in Kenya. Earlier studies for Kenya on diaspora remittances have focused mainly on the importance of foreign remittances on economic growth and stock market performance with less focus on macroeconomic variables that drives the remittances. In particular, the study determined the effect of economic growth, interest rates, and openness of the economy, interest rates differential and exchange rates on diaspora remittances in Kenya for the period 1980 – 2016 based on quarterly data. The study found that currency depreciation increases diaspora remittances. Similarly, economic growth, financail sector development and openness of the economy were shown to increase diaspora remittances. Based on the findings, the study recommends the need for effective application of prudent macroeconomic policies to attract more diaspora remittances inflows. In addition, there is need to adopt policies geared towards financial sector development such as the policies on formalization of the informal financial services, leveraging on the technology for financial sector development. Lastly, establishing more economic ties beyond trade with other economies to address issues on the taxation and other charges on the remitting funds from abroad would go a long way in promoting diaspora remittances inflows.

Promoting Bank Usage Habits in Africa’s Savings Mobilization Programs: A Strategic Marketing Perspective

Despite widespread liberalization of savings mobilization marketing systems in African economies, consumers continue to rely more heavily on informal financial services than formal financial services, within these systems. The authors draw on habit theory and the strategic marketing framework to develop a rural, customer-centric marketing (CCM) model for promoting rural savings programs in the Sub-Saharan African (SSA) context. Results based on data from Ghana’s savings mobilization program show that under the current, liberalized policy regime, formal financial institutions generate a more significant relative advantage than informal financial arrangements. Of the four customer-centric marketing activities (i.e., service affordability, accessibility, acceptability, and awareness), consumers only viewed service affordability as generating a relative disadvantage. Relatedly, only service affordability positively influenced savings likelihood, while service accessibility negatively influenced the bank usage habit. The results confirm that the customer-centric marketing approach effectively identifies which service inducements promote the bank usage habit in Africa’s savings mobilization programs.