Income diversification before and after economic shocks: evidence from urban and rural Zimbabwe

The article examines changes in income and activity diversification in Zimbabwe before and after macroeconomic policy changes and the droughts of the early 1990s. Data from two comparable national surveys straddling a period of economic volatility show that the percentage of households earning income from private and informal sources grew considerably, while income from government and formal sources declined. In general, rural households tend to have a more diversified portfolio of income than urban households, and the degree of income diversification decreases with the level of urbanisation. Following the shocks, there was a marked reduction in income diversification, notably among the poor. The findings thus strengthen the need for public provision of well-designed safety nets.     

The link between credit markets and self-employment choice among households in rural China

Our paper examines how credit markets operate through wealth to influence households’ entrepreneurial choices. Our results show that policy-led bank branch withdrawal in rural China has a significant negative impact on credit availability to rural households, though unexpectedly the effect is felt more strongly in informal than formal credit markets. Furthermore, we observe that self-employment is impeded by reductions in wealth associated with credit contraction. Policies which provide more and better formal financial services to rural households are predicted to increase the flow of credit, through both formal and informal channels, thereby supporting accumulation, diversification, and economic growth.     

Vulnerability of households to health shocks: an Indonesian study

We examine the effect of illness and injury shocks on work hours and household consumption in Indonesia. Using indices of activities of daily living to measure health shocks, we find that both labour hours and household consumption are influenced by health shocks to household heads. Further, farm households seem to be more seriously affected than non-farm households by health shocks. However, the magnitude of the health effect on household consumption is small, implying that even farm households are well protected on average by the presence of formal and informal risk-coping mechanisms.     

Informal lending amongst friends and relatives: Can microcredit compete in rural China?

This paper explores the relationship between informal and formal lending in China with consideration of how the strength of informal lending might affect microcredit. Lending relationships involving trust are investigated using original survey data from over 1500 farm households. Econometric results confirm a relationship between trust and informal lending, and mistrust and formal lending. With over 67% of farm households borrowing from friends and relatives the economic significance between this form of informal lending and borrowing from Rural Credit Cooperatives and Micro Finance Institutions cannot be overlooked.     

Self-help Groups and Income Generation in the Informal Settlements of Nairobi

The aim of this paper is to understand the functioning and thescope of self-help groups in the informal settlements of urbanareas as a means of generating income for poor households. Ituses a unique data set collected by the author in 1999 surveyingall individual group members from several informal settlementsin Nairobi. It studies the individual determinants of earningswithin groups and relates group composition to various indicatorsof group functioning. Sex, age and ethnic identity are amongthe most important determinants of individual reliance on groupincome and of access to group loans. Heterogeneity in earningsamong members is shown to reduce their ability to borrow fromthe group as a whole but not from each other. The impact ofethnic and other forms of heterogeneity on the division of labour,choice of compensation schemes, sanctioning technology and recruitmentcriteria is also described.     

The Impact of Social Safety Net Programs on Household Savings in Colombia

This paper seeks to understand and quantify how social safety net programs impact household savings in developing countries, considering the case of Colombia using two complementary approaches. The first approach explores how the health regime affects savings in the country. The second evaluates the impact on savings of familias en acción, a major antipoverty conditional cash transfer program. The results suggest that the savings of informal households are higher than those of formal households, because, with little incentive to enter the formal job market, informal households need to cover slightly greater non‐covered risks. The results also show that familias en acción recipients save more than non‐recipients because recipients favorably adjust their expenditure patterns.     

农户偏好农村非正规金融的动因:理论模型与经验证据

在广大发展中国家及欠发达地区,农户参与正规金融市场的程度很低,尤其是贫困农户的参与度更低。已有的研究认为正规金融部门实施的信贷配给导致了上述现象的发生。而本文提出一个新的命题:农户偏好从非正规金融市场借款是出于成本收益的算计,是既定约束条件下的理性选择,越贫困的农户越偏好农村非正规金融市场。此外,还运用数理模型论证了该命题在理论上成立的可能性,并通过对相关调研资料的梳理及实地调研为该命题的成立提供了充分的经验证据。     

Rural Development Finance in Vietnam: A Microeconometric Analysis of Household Surveys

This study examines (a) the rural household participation in the Vietnamese rural credit market, (b) the behavior of a formal lender in response to the credit needs of households, and (c) the impact of credit. The rural credit market in Vietnam is quite segmented. The formal sector specializes in lending for production purposes whereas the informal sector's lending is quite diverse. We show that rural households are rational in deciding which sources to ask for a particular kind of loan. Reputation, the dependency ratio of households, and the amount of credit applied for by the household are identified as the determinants of credit rationing by the bank. Credit is shown to have a significant impact on household production.     

Impacts of the COVID-19 crisis on single-person households in South Korea

Using nationally representative income and expenditure data from South Korea, we show that single-person households suffered a much greater decrease in household income and expenditure compared to multi-persons households during the COVID-19 pandemic in 2020. Negative effects on income were largest for the single-person households in ages 50—64, mostly driven by decreases in earned income rather than business income. There was no corresponding decrease in consumption expenditures, however, other than on transportation expenditure for young men. Notably, there were significant decreases in non-consumption expenditures that are related to formal and informal consumption-smoothing mechanisms, such as spending on insurances, pensions, and household transfers. Our findings highlight the disproportionately negative effects of the COVID-19 pandemic on the middle-aged single-person households. With reduced spending on consumption-smoothing mechanisms, this group is likely to be even more vulnerable to negative income shocks in the future.     

HOW DO POOR RURAL HOUSEHOLDS IN MYANMAR COPE WITH SHOCKS? COPING STRATEGIES IN A FISHING AND FARMING VILLAGE IN RAKHINE STATE

This paper examines how poor rural households in Myanmar cope with shocks which incur unexpected expenditure, namely, the sickness or death of a household member, using data collected in a fishing and farming village in Myanmar in 2008. The paper analyzes the sequence of coping strategies and the background factors behind the sequence. Self‐insurance, the dissaving of assets or cash, is given priority over intra‐party strategies, such as loans or gifts. The reason for this lies in the persistent severe credit constraints faced by households, both in terms of access and cost (high level of interest rates), and the absence of strong social norms for mutual insurance in the community. Both factors appear to force these households to self‐insure themselves from the outset.     

For the Motion

The interest rate is one of the most important factors in farmers’ decision-making of borrowing and lending in the informal financial market in China. This paper explores the determinants of the interest rate with microfinance data. Results show that the income disparity, the relationship between borrowers and lenders, the usage of borrowing, and formal credit constraints are important factors affecting interest rates. More importantly, to borrow from those in the higher income hierarchy, farmers have to bear higher interest rates. We attribute this to different social capitals across income groups and higher default risks for the poor. This paper contributes to a better understanding of the informal financial market in rural China and sheds light on the mechanism of higher informal interest rate formation.     

Informal and Formal Credit Markets and Credit Rationing in Cote d'Ivoire

This paper endeavours to shed light on the respective rolesof the formal and the informal credit markets in developingcountries. We use survey data for manufacturing firms in Côted'Ivoire, documenting their access to informal credit markets,their investments, and their financing. We confront these datawith a simple moral-hazard model of credit rationing. Becauseof socio-cultural effects, the magnitude of moral-hazard problemsand the cost of credit can be different in the informal creditmarket. We offer a structural econometric estimation of thismodel. Our empirical results point at severe moral-hazard problemsfor all firms, and reduced cost of credit in the informal market.Our point estimate suggests that moral-hazard problems can bealleviated in the informal credit market. Policy implicationsof our results are sketched.     

A panel data analysis of the formal-informal sector labour market linkages in South Africa

This study explores the labour market linkages between the informal and formal sectors, using the first four waves of the National Income Dynamics Study data. The main focus is on three groups of employed: worked in the formal sector in all waves; worked in the informal sector in all waves; moved between the two sectors across the waves. Only 27% of informal sector workers in wave 1 transitioned to the formal sector in wave 4; 38% remained in the informal sector while 33% had their status changed to either inactive or unemployed. The econometric analysis indicates that older and more educated individuals living in urban areas and coming from households with fewer old-age grant recipients are significantly more likely to work in the formal sector, whereas more educated white males are associated with a significantly greater likelihood of transitioning from informal to formal sector employment.     

MICROFINANCE PENETRATION AND ITS INFLUENCE ON CREDIT CHOICE IN INDONESIA: EVIDENCE FROM A HOUSEHOLD PANEL SURVEY

This paper studies empirical determinants of how heterogeneous households are matched to different types of loan products in a credit market in Indonesia. A unique situation arose when a microfinance institution launched operations in our survey area during the survey period, and we utilized its market entry for conducting mixed logit analysis of households’ credit choices. Time-varying choice sets help us identify parameters regarding preferences for various credit attributes. Our results show that the new availability of small-scale loans without collateral requirement greatly increases households’ probability of obtaining credit overall. Households in self-employed business prefer formal credit as a stable financing source but are impeded in receiving it when they locate in a rural area, probably because of large transaction costs. The poorest households, however, might not be able to exploit new credit opportunities as much as richer households, even if the scale of credit is very small.     

Do households care about cash? Exploring the heterogeneous effects of India's demonetization

The recent demonetization exercise in India is a unique monetary experiment that made 86 percent of the total currency in circulation invalid. In a country where the currency in circulation constitutes 12 percent of GDP, the policy turned out to be a purely exogenous macroeconomic shock that affected all agents of the economy. This paper documents the impact of this macroeconomic shock on households. By construction, the policy helped households with bank accounts in disposing of the demonetized cash. We use a new household-level data set to tease out the effects of this policy on households with no bank accounts relative to households with bank accounts. Our results show that the impact of demonetization on household income and expenditure has been transient. We find that households with no bank accounts experienced a significant decrease in expenditure in November and December-2016. We find a slight decline in income in November-2016 but the effect dissipates thereafter. There is significant heterogeneity in the impact across households in different asset quartiles. We also show evidence of recovery of household finances whereby households were able to smooth out consumption during the post-demonetization period. However, this recovery phase is associated with an increase in household borrowing from different sources. In particular, informal borrowing (e.g. money lenders and shops) increased during this period.     

An Empirical Analysis of Health Shocks and Informal Risk Sharing Networks

Using panel household survey data from rural Ethiopia, we investigate informal risk sharing against health shocks in the presence of multiple risk sharing networks. We find that neither short‐term nor long‐term health shocks are insured through transfers from networks such as friends, neighbors, and members of informal associations. However, networks related along bloodline such as extended family members provide assistance when health shocks are long‐term such as disabilities. The results show that these networks strategically complement planned component of their transfers which are made on a regular basis such as remittance, entitlement, or chop money (small cash sums for household expenses). Moreover, we find significant history dependence in transfers from not only genetically distant networks but also extended family members as well as formal institutions, which seems to discourage dependency. Finally, the findings suggest significant heterogeneity in transfers.     

Evidence on Informal Insurance in Rural Zimabwe

The test for the presence of full insurance employed by Townsend[Econometrica, 63(3), 539–91, 1994] and various othersdoes not take into account that households rely on buffer stocksto shield their consumption from income shocks. In this paperit is shown how, in the presence of partial insurance, not includingbuffer stocks leads to estimates that underreport the degreeof informal insurance. A test to correct for this omission isdeveloped and is applied to panel data from rural Zimbabwe.     

Do migrants get stuck in the informal sector? Findings from a household survey in four Indonesian cities

This article compares labour-market outcomes for individuals in migrant and non-migrant households in Indonesia. It introduces two new work-status groups – small-business operators and formal-casual or contract employees – in an effort to transcend the usual formal–informal distinction. We find that long-term migrants (LTMs) tend to gravitate to the small-business sector and to jobs with regular wages, whereas recent and very recent migrants are more likely to work in the informal sector. Our findings on the labour-market outcomes of successive generations of migrants are less conclusive. While a larger proportion of LTM children than that of their parents work in the formal sector, the children of migrant heads of households are less likely than those of non-migrants to find formal-sector jobs. We also find that distortionary labour-market regulations appear to diminish the overall benefits of migration.     

Formal and informal rural credit in the Mekong River Delta of Vietnam: Interaction and accessibility

This paper examines the factors influencing rural households’ access to credit in the Vietnamese market. Analysis confirms an interaction effect between informal and formal credit sectors in which informal credit positively influences accessibility to microcredit programs. Ignoring this interaction effect may lead to microcredit providers making loan decisions that are less than optimal. In the formal credit sector, the lowest income group faces more credit rationing than other groups, despite the fact that microcredit programs are designed to target households at the bottom of the income pyramid. Results demonstrate that land holding status, informal interest, and informal loan duration are important factors influencing access to informal credit. Factors influencing microcredit accessibility include local government employee status, credit group membership, a “poor” certificate, educational attainment, working skills and village road access. To reduce reliance on informal credit and improve microcredit accessibility, rural households should actively participate in a microcredit group.     

Discrimination in hire‐purchase lending by retailers of consumer durables in apartheid South Africa

A double‐hurdle partial observability model of hire‐purchase lending is specified and estimated to test for racial discrimination by retailers of consumer durables during apartheid. ‘Discrimination’ is defined as supplying no loans or less desirable loans to certain borrowers, who do not differ from more successful borrowers with respect to creditworthiness but who do differ with respect to race. There is strong evidence of discrimination. In particular, black households are 13 percentage points more likely to desire a hire‐purchase loan but not to have one supplied to them than are other households equivalent in all ways except race. Although the statistical test cannot determine whether race affected lending because lenders were bigoted or because race is correlated with unobserved characteristics correlated in turn with creditworthiness, increased access to formal loans for all South Africans could be promoted by relaxing the Usury Act and by removing from loan applications information that could reveal an applicant's race.