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Preferences over bank and family loans in rural Rwanda

Author

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  • Peters, Jörg
  • Schoofs, Annekathrin
  • Sievert, Maximiliane

Abstract

We study borrowers' preferences over bank and family loans based on field work undertaken in rural Rwanda. We randomly assigned willingness-to-pay questions for a hypothetical loan offer either by a bank or by a family member to a sample of 480 households. Informal family loans are typically easier to access. Because of the social costs they imply, it is widely believed that family finance is less attractive than formal finance. Our empirical results, however, show no significant difference in preferences over these two choices. This suggests that even if formal credits were widely accessible, people would still also utilize informal finance.

Suggested Citation

  • Peters, Jörg & Schoofs, Annekathrin & Sievert, Maximiliane, 2015. "Preferences over bank and family loans in rural Rwanda," Ruhr Economic Papers 588, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    • Handle: RePEc:zbw:rwirep:588
    DOI: 10.4419/86788683
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    Keywords

    informal finance; family loans; bank loans; social collateral; willingness-to-pay;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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