Informal Firms and Financial Inclusion : Status and Determinants
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 acce...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
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World Bank, Washington, DC
2014
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| Online Access: | http://documents.worldbank.org/curated/en/2014/02/18937100/informal-firms-financial-inclusion-status-determinants http://hdl.handle.net/10986/17322 |
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okr-10986-173222021-04-23T14:03:37Z Informal Firms and Financial Inclusion : Status and Determinants Farazi, Subika 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 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. 2014-03-18T21:02:41Z 2014-03-18T21:02:41Z 2014-02 http://documents.worldbank.org/curated/en/2014/02/18937100/informal-firms-financial-inclusion-status-determinants http://hdl.handle.net/10986/17322 English en_US Policy Research Working Paper;No. 6778 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English en_US |
| topic |
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 |
| spellingShingle |
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 Farazi, Subika Informal Firms and Financial Inclusion : Status and Determinants |
| relation |
Policy Research Working Paper;No. 6778 |
| description |
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. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Farazi, Subika |
| author_facet |
Farazi, Subika |
| author_sort |
Farazi, Subika |
| title |
Informal Firms and Financial Inclusion : Status and Determinants |
| title_short |
Informal Firms and Financial Inclusion : Status and Determinants |
| title_full |
Informal Firms and Financial Inclusion : Status and Determinants |
| title_fullStr |
Informal Firms and Financial Inclusion : Status and Determinants |
| title_full_unstemmed |
Informal Firms and Financial Inclusion : Status and Determinants |
| title_sort |
informal firms and financial inclusion : status and determinants |
| publisher |
World Bank, Washington, DC |
| publishDate |
2014 |
| url |
http://documents.worldbank.org/curated/en/2014/02/18937100/informal-firms-financial-inclusion-status-determinants http://hdl.handle.net/10986/17322 |
| _version_ |
1764436872654749696 |