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

Author

Listed:
  • Maria Semenova

    (National Research University Higher School of Economics. Center for Institutional Studies)

  • Victoria Rodina

    (National Research University Higher School of Economics. Center for Institutional Studies)

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

Suggested Citation

  • Maria Semenova & Victoria Rodina, 2013. "Informal loans in Russia: credit rationing or borrower’s choice?," HSE Working papers WP BRP 14/FE/2013, National Research University Higher School of Economics.
  • Handle: RePEc:hig:wpaper:14/fe/2013
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    References listed on IDEAS

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    Cited by:

    1. Degryse, Hans & Lu, Liping & Ongena, Steven, 2016. "Informal or formal financing? Evidence on the co-funding of Chinese firms," Journal of Financial Intermediation, Elsevier, vol. 27(C), pages 31-50.

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    More about this item

    Keywords

    household; consumer loans; informal loans; Russia;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • P2 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies

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