THE ECONOMIC LIMITS OF TRUST: THE CASE OF A LATIN-AMERICAN URBAN INFORMAL COMMERCE SECTOR

Klaus Jaffe (), Sary Levy Carciente and Wladimir Zanoni
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Klaus Jaffe: Centro de Estudios Estratégicos, Universidad Simón Bolívar, Apartado 89000, Caracas 1080, Venezuela
Sary Levy Carciente: Instituto de Investigaciones Económicas y Sociales "Rodolfo Quintero" (IIES), Facultad de Ciencias Económicas y Sociales (FACES), Universidad Central de Venezuela (UCV), Venezuela

Journal of Developmental Entrepreneurship (JDE), 2007, vol. 12, issue 03, 339-352

Abstract: Social capital is thought to be an important source of social cohesion and a key ingredient for socioeconomic expansion in developing nations. We study its role among street vendors and their money lenders in Caracas, an illegal business based solely on trust and social bonds. We analyzed demand and supply of credit by informal street vendors and money lenders, exploring the relationship between street vendors' assets, income generated, financial and human capital and financial strategies, and those of the money lenders. We found that street vendors' main source of working capital were money lenders, despite charging the highest interest rate. The kind and amount of credit was not correlated to higher incomes. On the supply side, we found that money lenders based their business almost exclusively on trust and manage all clients personally, which limits the growth of their business. This study suggests that the main constraint for increased productivity in the informal sector is not the cost of capital, but the transaction costs involved in accessing credit and a lack of legal enforcements, and that improvement of the lending business is difficult without institutional support.

Keywords: Informal economy; street vendors; money lenders; trust; social capital (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (2)

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DOI: 10.1142/S108494670700071X

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