IDEAS home Printed from https://ideas.repec.org/p/hig/wpaper/14-fe-2013.html
   My bibliography  Save this paper

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
    as

    Download full text from publisher

    File URL: http://www.hse.ru/data/2013/06/27/1285979409/14FE2013.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. David Godsted & John A. Tatom, 2006. "Targeting the Unbanked – Financial Literacy’s Magic Bullet?," NFI Reports 2006-NFI-02, Indiana State University, Scott College of Business, Networks Financial Institute.
    2. Beck, Thorsten & Demirguc-Kunt, Asli & Maksimovic, Vojislav, 2004. "Bank Competition and Access to Finance: International Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(3), pages 627-648, June.
    3. Leora F. Klapper & Annamaria Lusardi & Georgios A. Panos, 2012. "Financial Literacy and the Financial Crisis," NBER Working Papers 17930, National Bureau of Economic Research, Inc.
    4. Beck, Thorsten & Demirguc-Kunt, Asli & Martinez Peria, Maria Soledad, 2007. "Reaching out: Access to and use of banking services across countries," Journal of Financial Economics, Elsevier, vol. 85(1), pages 234-266, July.
    5. Samuel Lee & Petra Persson, 2016. "Financing from Family and Friends," Review of Financial Studies, Society for Financial Studies, vol. 29(9), pages 2341-2386.
    6. Semenova, Maria, 2011. "Save or borrow : what determines Russian households' financial strategies?," BOFIT Discussion Papers 28/2011, Bank of Finland, Institute for Economies in Transition.
    7. Zeller, Manfred, 1994. "Determinants of credit rationing: A study of informal lenders and formal credit groups in Madagascar," World Development, Elsevier, vol. 22(12), pages 1895-1907, December.
    8. D. Strebkov, 2005. "Household Borrowing Behavior in Russia," Problems of Economic Transition, Taylor & Francis Journals, vol. 48(5), pages 22-48.
    9. Silvia Magri, 2002. "Italian households' debt: determinants of demand and supply," Temi di discussione (Economic working papers) 454, Bank of Italy, Economic Research and International Relations Area.
    10. Silvia Magri & Raffaella Pico & Cristiana Rampazzi, 2011. "Which households use consumer credit in Europe?," Questioni di Economia e Finanza (Occasional Papers) 100, Bank of Italy, Economic Research and International Relations Area.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    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.

    More about this item

    Keywords

    household; consumer loans; informal loans; Russia;

    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 - Economic Systems - - Socialist Systems and Transition Economies

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hig:wpaper:14/fe/2013. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamil Abdulaev) or (Victoria Elkina). General contact details of provider: http://edirc.repec.org/data/hsecoru.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.