Heterogeneity in informal sector mitigation of micro-enterprise credit rationing
Economists have observed that informal credit markets may mitigate micro-entrepreneurial rationing in formal credit markets. While informal credit markets may have that effect, the uniformity and magnitude of the mitigation is not apparent. We analyse micro-enterprise credit rationing on the Pine Ridge Indian Reservation in the United States. We find that micro-entrepreneurs have virtually no access to formal credit markets and that informal credit markets have differential impacts on micro-entrepreneurs' rationing in formal credit markets. Informal markets appear to ease credit rationing the most for the mid-size micro-enterprises in our sample, with the smallest and largest micro-enterprises still facing severe rationing constraints. We also find that micro-enterprises of all sizes face a positive probability of credit rationing. Copyright © 2006 John Wiley & Sons, Ltd.
Volume (Year): 19 (2007)
Issue (Month): 5 ()
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