Informal Labour and Credit Markets: A Survey.

However, the creation of the rural cooperatives in India does not enhance the volume
of funds available in credit markets but also increases competition in the formal credit
markets, inducing another stylized fact:

• informal credit is more important the more concentrated are formal credit markets
(SF 17)

Further relevant evidence for China can be found in Cull and Xu (2005), Chen and Degryse
(2008) and Ayyagari et al. (2008).

There are some some mixed trends in the distribution of credit when both formal and
informal credit markets are present:

• the distribution of formal loans to rural households favors wealthy borrowers or
large farms while the majority of informal loans were distributed to poor borrowers
or small farms (SF 18)

Relevant evidence can be found in Siamwalla et al. (1990) for Thailand and Kochar (1997)
and Banerjee and Duflo (2007) for India;

• a high proportion of all borrowers obtain credit from both formal and informal credit
markets simultaneously (SF 19).

See Das-Gupta et al. (1989) for India, Conning (2001) for Chile and Gine (2007) for
Thailand; and

• informal moneylenders obtain formal credit to fund their informal credit services
(SF 20)

See Hoff and Stiglitz (1990), Ghate et al. (1992), Irfan et al. (1999) and Madestam (2009).

Credit may be rationed in some periods and credit markets are segmented with local
moneylenders, borrowers with no collateral may have to seek informal credit with high
interest rates. Interest rates charged by moneylenders in informal credit markets may
exceed 75% per year (Besley (1994) and Hoff and Stiglitz (1990)).

• informal interest rates are on average much higher than formal rates (SF 21)

Furthermore, Banerjee (2003) shows that

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