Informal loans in Russia: credit rationing or borrower’s choice?

Maria Semenova and Victoria Rodina ()
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Victoria Rodina: National Research University Higher School of Economics. Center for Institutional Studies

HSE Working papers from National Research University Higher School of Economics

Abstract: This paper examines the strategies of Russian households for choosing either the formal or informal banking sector as a source of credit. We aim to learn why households refuse to become clients of a bank and prefer to instead raise funds by borrowing from individuals – friends, colleagues, relatives, and other private parties. We use the results of “Monitoring the Financial Behavior of the Population” (2009-2010), a national survey of Russian households. Our results suggest that a household’s choice of the informal credit market is based not only on economic factors, but also on some institutional ones, including financial literacy, trust in the banking sector, and credit discipline. We show that choosing the informal market is explained by a lack of financial literacy, measured by mathematical competence and home accounting, as well as by a lack of trust in the banking sector as a whole. Borrowers from private parties demonstrate a higher degree of credit discipline: those who believe that repaying a loan is not obligatory are less frequently among informal borrowers and they choose the bank credit market. Our findings, however, are still in line with credit rationing theory. We show that better financial conditions reduce a household’s probability to use both formal and informal credit markets in favor of pure bank borrowing

Keywords: household; consumer loans; informal loans; Russia (search for similar items in EconPapers)
JEL-codes: D14 G21 P2 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2013
New Economics Papers: this item is included in nep-ban, nep-cis, nep-iue, nep-soc and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in WP BRP Series: Financial Economics / FE, June 2013, pages 1-31

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