Paper
Understanding the Diversity and Complexity of Demand for Financial Services: Lessons from Informal Finance
Does microfinance substitute informal finance?
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30 pages
This paper analyzes informal finance in order to deepen understanding of financial service demand.The paper states that microfinance supply is too standardized, inflexible and inadequate to satisfy diverse financial needs. As a result, it is only a partial substitute for informal financial services. The study analyzes the social dimension of monetary and financial transactions. It demonstrates that microfinance does not substitute informal finance. Reasons include:
- Money and informal finance are multidimensional and context specific;
- Boundary between saving and borrowing is blurred;
- Money circulates quickly and in small quantities in village economies;
- Informal finance is more flexible;
- Informal finance is a vector of social inclusion.
The paper states that analysis of informal practices is informative for microfinance providers because it improves understanding of how people perceive financial services, use microfinance services and coordinate microfinance and informal finance.
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