Informal Loans in Russia: Credit Rationing or Borrower's Choice?

31 Pages Posted: 28 Jun 2013

See all articles by Maria Semenova

Maria Semenova

National Research University Higher School of Economics

Victoria Rodina

National Research University Higher School of Economics

Date Written: June 27, 2013

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.

Keywords: household, consumer loans, informal loans, Russia

JEL Classification: D14, G21, P2

Suggested Citation

Semenova, Maria and Rodina, Victoria, Informal Loans in Russia: Credit Rationing or Borrower's Choice? (June 27, 2013). Higher School of Economics Research Paper No. WP BRP 14/FE/2013, Available at SSRN: https://ssrn.com/abstract=2286129 or http://dx.doi.org/10.2139/ssrn.2286129

Maria Semenova (Contact Author)

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

Victoria Rodina

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
70
Abstract Views
642
rank
369,350
PlumX Metrics