1、1 外文题目： The importance of informal finance in kenyan manufacturing 出 处： International Journal of Social Economics &nbs
2、p; 作 者： Anders Isaksson &nbs
3、p; 原 文： THE IMPORTANCE OF INFORMAL FINANCE IN KENYAN MANUFACTURING Anders Isaksson Abstract: This paper investigates the importance of informal finance for Kenyan manufacturing firms. The results indicate that informal borrowi
4、ng is not an important alternative to other forms of finance. The main clients of informal finance are informal firms and relatively small formal ones, although informal credit is to some extent demanded by firms of all sizes. Most important among the informal financial sources are relatives and fri
5、ends. The principal reasons for using informal finance are low interest rates, easier formalities, and the fact that no collateral is required. Keywords:Informal finance,Angels,Africa,Kenya, Manufacturing sector Introduction Access to external finance is important to all enterprises. For instance, i
6、nvestment in fixed capital often requires a large lump sum of funds. The adoption and installation of new and better technology might demand external finance. Some firms need accessto working capital financing to smooth out fluctuations in income due to differencesin the timing of production and sal
7、es. In many Subsaharan African economies. However, financial and legal systems do not operate efficiently and,therefore, credit may not be forthcoming. In such a situation, a firm has to seek alternative sources of finance. The alternative source of external finance considered in this paper is the i
8、nformal financial sector.Historically,SSA financial systems have been highly fragmented into dual markets,namely,a formal and an informal financial market.Traditionally,the formal financial sector has been seen to serve the government,while the informal one serves the private sector. There are two m
9、ain views explaining the existence of informal finance.One is that informal finance is a reaction to policy distortions,or financial repression(e.g.Fry,1995；Taylor,1983).Since the informal financial sector is not subject to regulation,it is more efficient than the formal one.The remedy for the relat
10、ive inefficiency of the formal credit market may be seen in financial liberalization.The second view maintains that the informal sector has a comparative advantage in some 2 market segments notwithstanding financial liberalization.While it is costly for formal institutions to acquire informati
11、on,informal agents can utilize local personal information,resulting in monopoly power.It is wellknown that a weak legal system inhibits contract enforcement,which results in credit rationing of potential borrowers without collateral.Informal agents can fill such market segments and collateral can be
12、 replaced by reputation,group responsibility,and interlinked transactions(Steel et al,1997). While informal financial markets in Asia are often vibrant and relatively efficient,there are few indications that informal finance is an important alternative to formal credit in SSA.A study by Biggs et al(
13、1994),using Kenyan data for one year,finds that informal finance is used to a limited extent only,with the preferred informal source being that of relatives and friends(angels).It is interesting to note,however,that those few firms that do use informal finance can be of any size. While most of the l
14、iterature stresses the limited role of informal finance in SSA,an exception is the Ghana-study by Cuevas et al(1993),which finds that informal financial activities are of significant importance to small and medium-sized firms.The dominant informal source is borrowing from angels.Fafchamps,Pender and
15、 Robinson(1995)show that informal finance constitutes 34 per cent of total debt for small firms in Zimbabwe.For other size categories,the corresponding figure was less than 10 per cent.Another result from these authors is that informal credit is used onaverage by 17 per cent of the firms,and 23 per
16、cent of the large firms.Moreover,thework by Bigsten et al(2001)covering six SSA countries shows that formal financial markets are inefficient and biased against lending to small firms.This bias impelssmall firms often to turn elsewhere for external finance?quite possibly to some informal financial l
17、ender. In the present study,attention is paid to the role of the informal financial sector in providing external finance to manufacturing firms in Kenya.Although the Kenyan financial system is quite sophisticated by SSA standards,it seems unable to provide adequate external finance to support firm g
18、rowth.McCormick,Kinyanjui and Ongile(1997),for example,argue that one principal obstacle to firm growth in Kenya is lackof external finance.Instead of coming from the formal financial sector,initial capital tends to source from own savings and angels. The descriptive analysis suggests that informal
19、finance is used mainly by informal firms and by relatively small formal firms.Compared with other ethnic groups,formal firms owned by Africans appear slightly more likely to borrow from informal sources.As regards the share of informal loans in total loans,African ownership is more important.Firms w
20、ith ownership status other than African hold only negligible amounts of informal loans as a share of total borrowing.In the formal sector,only micro and small firms borrow any significant amounts of money from in formal sources.As can be expected,it is mainly informal firms that rely on informal bor
21、rowing. The reasons for borrowing from informal sources differ.Of the firms with informal financing,formal firms stress the relatively low cost(compared with formal borrowing of such loans and the lesser formality as reasons for turning to informal 3 sources,while an overwhelming amount of inf
22、ormal firms single out the lesser formality.Pooled regression analysis on the probability of having an informal loan suggests that other modes of financing,including internal finance,considered preferable to resorting to informal sources.The regression results also confirm that the typical user of i
23、nformal credit is relatively small. A sketch of the informal financial market The informal financial sector can be described as that part of the economy in which financial activities take place which are not the officially regulated or monitored.This unofficial activity should,however,not be dismiss
24、ed as unimportant and marginal.There are countries where the informal economy accounts for as much as 20-30 percent of GDP.Thus,it is clear that informal sector activities could even have macro economic effects.In some countries informal activities are illegal,while in others they are legal to vario
25、us degrees(Bolnick,1992). The principal reason for the emergence of an informal financial market is the unwillingness of the formal financial sector to lend to some(relatively risky)categories of borrowers.Increased risk often stems from the difficulty to obtain accurate and reliable information abo
26、ut borrowers.Examples that hinder the flow of accurate information are geographical remoteness or illiteracy.Small clients are also effectively shut out from the formal market due to high collateral requirements and high minimum deposit requirements,but there is some evidence that small enter prises
27、 seldom turn to informal financial sources.Two reasons for not drawing on informal finance are expected high costs or the smallness and unreliability of lenders. Another reason for the emergence of informal financial activities is that some firms may turn to informal sources in case of liquidity sho
28、cks.Yet another explanation for using informal sources may be that more funds can be raised at alower cost and without collateral when the source is a relative or friend(hence forth called“angel”). Interest rates in the informal financial sector tend to be higher than in the formal financial sector,
29、although among informal lenders,interest rates are seldom used as a discrimination device to screen borrowers.Aleem(1990)argues that lenders sometimes borrow from the informal market themselves and lend on at an even higher interest rate.The large cost of monitoring and administering informal contra
30、ct sin creases the cost of borrowing.Higher risks and costs of delinquency are other explanations for the relatively high interest rates,although the loan portfolios of the informal lenders compared with formal lenders had low delinquency and default rates(Steel et al,1997).To these reasons,the oppo
31、rtunity costs of holding cash may alsobe added.This paper later provides indications that the interest charged on informal loans may actually be lower than that charged on formal credit. Unlike commercial banks,informal lenders use personal,social,and business relationships to preselect clients.Rota
32、ting Savings and Credit Associations(ROSCAs) use group membership as a selection device,traders and landlords only lend to their customers and tenants,while savings collectors tend to lend to regular customers.Moreover,recommendations from previous clients and personal knowledge are important ingredients in the selection process.
