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Why Do SMEs Use Informal Credit? A Comparison between Countries

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  • Elmas Yaldız Hanedar
  • Yener Altunbas
  • Flavio Bazzana

Abstract

Informal finance refers to financial transactions that occur outside official financial institutions and that are not regulated by governmental authorities. The purpose of this paper is to investigate what are the difficulties of SMEs in accessing formal finance and therefore how the country- and firm-level factors that explain the presence of such financial constraints may incfluence the use of informal credit by the SME. We find that credit-constrained SMEs rely on informal credit of any type. In addition the size and the age of the firm and whether the firm has a payment overdue determine their use of informal credit. On the other hand, the quality of the legal system is the most significative country-level factor.

Suggested Citation

  • Elmas Yaldız Hanedar & Yener Altunbas & Flavio Bazzana, 2014. "Why Do SMEs Use Informal Credit? A Comparison between Countries," Journal of Financial Management, Markets and Institutions, Società editrice il Mulino, issue 1, pages 65-86, July.
    • Handle: RePEc:mul:jdp901:doi:10.12831/77237:y:2014:i:1:p:65-86
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    References listed on IDEAS

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    Cited by:

    1. Andrés Rodríguez‐Pose & Roberto Ganau & Kristina Maslauskaite & Monica Brezzi, 2021. "Credit constraints, labor productivity, and the role of regional institutions: Evidence from manufacturing firms in Europe," Journal of Regional Science, Wiley Blackwell, vol. 61(2), pages 299-328, March.
    2. Szabó, Zsolt, 2019. "Elbátortalanodott hiteligénylők a vállalati szektorban [Discouraged borrowers in the corporate sector]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(11), pages 1145-1186.
    3. Esho, Ebes & Verhoef, Grietjie, 2018. "The Funding Gap and the Financing of Small and Medium Businesses: An Integrated Literature Review and an Agenda," MPRA Paper 90153, University Library of Munich, Germany, revised 21 Nov 2018.
    4. Roberto Ganau & Andrés Rodríguez-Pose, 2022. "Credit constraints in European SMEs: does regional institutional quality matter?," Applied Economics Letters, Taylor & Francis Journals, vol. 29(15), pages 1388-1392, September.

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