Loans to Family and Friends and the Formal Financial System in Latin America

Susana Herrero, Jeniffer Rubio () and Micaela León
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Susana Herrero: Centro de Investigaciones Económicas y Empresariales, Universidad de las Américas, Quito 170124, Ecuador
Jeniffer Rubio: Centro de Investigaciones Económicas y Empresariales, Universidad de las Américas, Quito 170124, Ecuador
Micaela León: Centro de Investigaciones Económicas y Empresariales, Universidad de las Américas, Quito 170124, Ecuador

IJFS, 2025, vol. 13, issue 3, 1-17

Abstract: In Latin America, over 50% of the population has relied on loans from family members or friends, reflecting the importance of trust-based networks in response to financial exclusion. This study examines how distrust in the formal financial system influences the use of informal borrowing. Using data from 17 countries for the years 2014, 2017, and 2021, and applying a fixed-effects logistic regression model by country and time, we confirm that rising distrust significantly increases the likelihood of turning to loans from personal networks. This relationship intensifies in times of crisis. Beyond this, we find that macroeconomic variables such as GDP per capita and unemployment also significantly affect informal borrowing behavior. This research contributes to the literature by integrating institutional, economic, and social variables, highlighting the role of interpersonal trust as a form of social capital. It also advances the field of personal finance by revealing an everyday strategy of financial resilience. Finally, this study offers relevant implications for public policy, advocating for a more realistic and context-sensitive approach to financial inclusion, especially in regions where credit constraints in the formal sector have pushed households to seek more accessible and flexible alternatives.

Keywords: financial distrust; informal credit; financial development; Latin America (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2025
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