Informal Credit Markets:
Impications for S&C Programmes


Transactional Credit Suppliers: Transactional credit suppliers are those who provide credit as a transaction - examples include money lenders, pawn brokers, employers'/traders' credit etc. The central idea of such suppliers is their timely credit - credit is made available immediately, when it is most needed.

  • Implication for organizational aspects
    1. Strong information links
    2. Close physical proximity to the borrower
    3. Information campaigns, awareness building

  • Implications for operational aspects
    1. Less procedure and paperwork in establishing credit worthiness
    2. Flexible "office" timings.

    Mutual Credit Suppliers: As the name suggests, credit is supplied in a mutual fashion, where both borrowers and lenders are interchangable in the credit cycles. Examples include ROSCAs, community credit groups, credit societies, etc. The central idea of such suppliers is their savings-linked credit -

  • Implications for organizational aspects
    1. Loans are given out only after a specific amount is saved
    2. Loans can be a multiple of amount saved.
    3. Information links and screening of members for committment and group/collective collateral

  • Implications for operational aspects.
    1. Development of a dynamic network to mobilize savings (timing and location being important criteria).
    2. Programmes that incorporate enforced and voluntary savings.

    Personal Credit Suppliers - Personal credit suppliers are usually single individuals who supply credit on a "casual" and unencumbered/reciprocal basis.

  • Implications for organizational aspects.
    1. Very personal and proximate relationships
    2. Development of cohesiveness and group activities to bind members together
    3. Tailor loan terms and conditions to specific needs and borrowers

  • Impications for operational aspects
    1. Explore alternative ways of screening for credit loans (eg: non-conventioanl, non-marketable assets for collateral, if necessary).
    2. Gender-specific programmes
    3. Located close to the borrower
    4. Easily understood terms and conditions
    5. Campaigns (audio/visual) in encouraging savings from households.

    • See the Continuum of Informality of Credit for a more detailed description.

    Source:
    Based on field work in Bangalore, India conducted in six squatter settlements (June-July, 1991)
    Hari Srinivas - hsrinivas@gdrc.org
    Return to the Microfinance Governance Page
    Return to the Virtual Library on Microcredit