Using Contracts to Analyse Informal Finance

Provides background and context to the use of contracts, stipulations in their use, and the process of trade-offs in specifying contracts. Uses descriptions of two contracts in Bolivia to illustrate contrasting cases: One is a peddler loan, commonly offered to urban street peddlers in the capital city, and the other is an agricultural bank loan that a now-defunct bank used to offer to small and medium sized farmers.

Conclusions include:

• Discussions of informal finance have been biased and overlooked interesting innovations in contract activities;
• Applying the notion of contracts to informal financial activities can lend clarity to social scientists (economics, sociologists, anthropologists) trying to learn more about the subject and provide policy makers with useful insights;
• Analysing contracts may allow for organising information in a manner that reflects how people make decisions about financial activities, both formal and informal.