Determinants of Informal Credit Use : A Cross Country Study

The aim of this paper is to understand why firms choose to finance their fixed asset investments by informal credit. We examine the both country and firm level determinants of this choice in a cross-country setting. Data on informal credit use of firms is extracted from the Business Environment and Enterprise Performance Surveys which enable us to study with a wider data compared to the previous studies. Our results address financial constraints as the source of informal credit use. Moreover firm size, owners' gender and location are important firm level factors affecting firms' reliance on informal credit. Finally financial development level in the country has significant impacts on decreasing the informal credit use