Informal Credit Markets
in the Urban Informal Sector Perspective

TThe urban informal sector (UIS) is a misunderstood economic sector that is an inevitable and existential aspect of any developing economy. While governments tend to traditionally look at the UIS activities as illegal, part of a "black" economy run by criminal elements of a society, the reality is it is a sector that provides economic opportunities and living resources for the very poor of a city (who are not serviced by the formal sector or do not have the resources to access formal resources such as banks).

There is a need to better understand the features of the UIS that provide the necessary stepping stones for low-income households to integrate themselves and survive in an urban setting, providing employment, entrepreneurial opportunities, land and housing and credit to them.

While there are elements of exploitation, marginalization and disadvantaged situations that low-income households find themselves in the UIS, the flip side of the story is that the UIS provides a point of intervention to improve the lives and livelihoods of such households, and opportunities and resources for their better integration into the broader urban economy.

The table below presents some of the positive and negative features of the UIS in terms of employment, i.e. the jobs and working conditions of people working in the UIS; enterprises, i.e. the economic activities carried out in the UIS; habitat, i.e. yhe land and housing issues within the UIS; and credit, i.e. the financial and credit markets that service the UIS.

People engaged in the informal sector Activities in the informal sector Land and Housing settlements Informal Credit Markets
Absence of protection or recognition Unregulated and competitive Unauthorized use of vacant public or private land Unregulated and non-subsidized
Non-coverage by minimum wage legislation and social welfare Small-scale operation with individual/family operation Illegal sub-division/rental of land Easy accessibility
Predominance of own-account/self-employed work Ease of Entry Unauthorized construction of structures and buildings Loan availability in very small size and for short periods
Absence of trade union organization Reliance on locally available resources Reliance on low cost and locally avaiable waste materials Low administrative and information costs
Low income and wages Family ownership of enterprises Reliance on low family labour and artisanal techniques for construction Little or no collateral
Little job security Labour-intensive and adopted technologies Absence of restrictive standards and regulations Flexible interest rates (from very high to no interest)
No fringe benefits from institutional sources Absence of access to institutional credits and similar supports Non-availability of mortgage or any other subsidized finance Highly flexible transactions and repayments tailored to individual needs

Adopted from:
Table adopted from Amin, A.T.M.N., "Handbook of Urban Informal Sector". Bangkok: Asian Institute of Technology.

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