Elmas Yaldız Hanedar, Yener Altunbas, Flavio Bazzana

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Why Do SMEs Use Informal Credit? A Comparison between Countries

  • Abstract

Informations and abstract

Keywords: SMEs; Informal Credit; Credit Constraints.

Informal finance refers to financial transactions that occur outside official financial institutions and that are not regulated by governmental authorities. The purpose of this paper is to investigate what are the difficulties of SMEs in accessing formal finance and therefore how the country- and firm-level factors that explain the presence of such financial constraints may incfluence the use of informal credit by the SME. We find that credit-constrained SMEs rely on informal credit of any type. In addition the size and the age of the firm and whether the firm has a payment overdue determine their use of informal credit. On the other hand, the quality of the legal system is the most significative country-level factor.

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