Informal Firms and Financial Inclusion : Status and Determinants
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World Bank, Washington, DC
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Many firms in the developing world --
including a majority of micro, small, and medium enterprises
-- operate in the informal economy. The informal firms face
a variety of constraints, making it harder for them to do
business and grow. Lack of access to finance is often cited
as the biggest operational constraint these firms face. This
paper documents the use of finance and financing patterns of
informal firms, highlights differences between use of
finance by formal and informal firms, and identifies the
most significant characteristics of informal firms that are
associated with higher use of financial services. The
analysis shows that use of loans and bank accounts for
business by informal firms is very low and a vast majority
finances their day-to-day operations and investments through
sources other than financial institutions (internal funds,
moneylenders, family, and friends). A majority of informal
firm owners would like their firms to become formal but do
not do so as it would require them to pay taxes. Registered
firms are 54 percent more likely to have a bank account and
32 percent more likely to have loans. Results also show that
firm size, the level of education of the owner, and whether
the owner has a job in the formal sector are significantly
associated with financial inclusion of informal firms.
Palabras clave
ACCESS TO CREDIT, ACCESS TO FINANCE, AGRICULTURAL ACTIVITIES, ALLOCATION OF CREDIT, APPLICATION PROCEDURES, BANK ACCOUNT, BANK ACCOUNTS, BANK FINANCING, BANK LOAN, BANKS, BUSINESS ACTIVITIES, BUSINESS ACTIVITY, BUSINESS ENVIRONMENT, BUSINESS ENVIRONMENTS, BUSINESS LOAN, BUSINESS OWNERS, CAPITAL MARKET, CAPITAL MARKET DEVELOPMENT, CAPITAL MARKETS, CAPITAL REQUIREMENT, COLLATERAL, COLLATERAL REQUIREMENT, COLLATERAL REQUIREMENTS, COMPANY, CORPORATION, CORRUPTION, COUNTRY RISK, CREDIT ACCESS, DEPOSIT, DEPOSIT MONEY BANKS, DEVELOPING COUNTRIES, DUMMY VARIABLE, EARNINGS, ECONOMIC ACTIVITIES, ECONOMIC ACTIVITY, ECONOMIC AGENTS, ECONOMIC GROWTH, EMERGING ECONOMIES, EMPLOYMENT, ENTERPRISE FINANCE, ENTREPRENEURIAL ACTIVITY, ENTREPRENEURS, EXCLUSION, EXPENDITURE, FAMILIES, FINANCES, FINANCIAL ACCESS, FINANCIAL AGENCIES, FINANCIAL DEVELOPMENT, FINANCIAL INSTITUTION, FINANCIAL INSTITUTIONS, FINANCIAL PRODUCTS, FINANCIAL SECTOR DEVELOPMENT, FINANCIAL SERVICES, FINANCIAL SYSTEM, FIRM SIZE, FIRMS, FORMAL SECTOR BUSINESS, GENDER, GOVERNMENT REGULATION, GROSS DOMESTIC PRODUCT, HIGH INTEREST RATES, HIGHER EDUCATION LEVELS, INCOME GROUPS, INCOME TAXES, INFORMAL ECONOMIES, INFORMAL ECONOMY, INFORMAL WORKERS, INSURANCE, INTERNAL FUNDS, INTERNATIONAL BANK, INTERNATIONAL FINANCE, INTERNATIONAL FINANCIAL STATISTICS, INVESTMENT FINANCING, JOB SECURITY, JUDICIAL SYSTEM, LABOR MARKETS, LACK OF ACCESS, LACK OF INFORMATION, LACK OF PROPERTY, LAND TITLING, LAWS, LEGAL FRAMEWORK, LEGAL PROTECTION, LEGAL REQUIREMENTS, LEGAL SYSTEM, LEGAL SYSTEMS, LOAN, LOAN APPLICATION, LOCAL CURRENCY, LOCAL MARKET, MARKET DEVELOPMENT, MEDIUM ENTERPRISES, MFI, MFIS, MICROFINANCE, MICROFINANCE INSTITUTION, MICROFINANCE INSTITUTIONS, MINIMUM CAPITAL REQUIREMENT, MINIMUM WAGES, MONETARY FUND, MONEYLENDER, MONEYLENDERS, NEW BUSINESS, OVERDRAFT, OVERDRAFT FACILITY, PENSION, PHYSICAL CAPITAL, PRIVATE CREDIT, PRIVATE PROPERTY, PRODUCTIVITY, PROFITABILITY, PROPERTY RIGHTS, PUBLIC INVESTMENTS, REGIONAL DUMMY, REGISTRATION REQUIREMENTS, REGULATORY FRAMEWORKS, RETAINED EARNINGS, RISK OF EXPROPRIATION, RULE OF LAW, SHADOW ECONOMIES, SHADOW ECONOMY, SMALL FIRMS, SME, SOCIAL SECURITY, SOURCE OF INCOME, START-UP, START-UP COSTS, STATE INTERVENTION, SUPPLIERS, TAX, TAX POLICY, TAXATION, TRADE CREDIT, VARIABLE COSTS, VILLAGES, WORKING CAPITAL