Loan ko ‘to: assessing the prevalence and productivity of the informal credit market
Date
2018-12-31
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Abstract
According to the 2014 Consumer Finance Survey of the Bangko Sentral ng Pilipinas
(BSP), the informal credit market serves as the main source of financing for Filipino
households, with 70% percent of households reporting to have some form of informal
loan. This paper aims to determine the characteristics of informal loan borrowers and
whether such informal credit is being allocated for productive purposes. By employing a
multinomial logistic regression model to simulate the decision-making process of a
borrower, we found that family size, educational attainment, location of residence,
income, and property ownership are significant predictors of the likelihood of whether
one will avail of an informal loan. Further, we found that informal loans are found to be
utilized for investments in physical capital rather than other types of consumption or
investment purposes. These findings imply that interventions of both the BSP and other
government agencies to improve accessibility of formal credit and government loans will
have long-term implications for inclusive economic growth.
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Keywords
informal finance, loan utilization, physical capital investment, deterdeterminants of informal borrowing, Phippine financial sector