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T he commonly held belief of credit market "duality" in the form of "formal" and
"informal" is misleading and any attempts at aggregation have either a locational or
sectoral bias (core/periphery, urban/rural, modern/traditional). The varying degrees of
informality and flexibility observed in the study are complex and multi-dimensional,
with characteristics ranging from freedom from regulation, flexibility in interest rates
and periods to small scale of operation - covering both its organizational and
operational features.
In spite of these problems, an attempt has been made to develop a continuum of
credit informality. This would distinctly show the gray areas - those informal operators
who exhibit characteristics of formal suppliers or formal suppliers who have adopted
the working systems of the informal supplier.
The continuum was not plotted in the typical linear manner, but on a dual-axis format.
This was done by distinguishing loan conditions into "monetary" and "non-monetary"
components along the x and y axis. The monetary components covered loan
amounts, rates of interest, loan periods and repayment schedules; while the
non-monetary components covered transaction amounts, collateral requirements,
proximity to borrowers and personalized services
In charting the continuum, focus has been maintained on suppliers who provide
informal credit in urban squatter settlements. Unlike formal credit institutions, most
functioned as single entities with few linkages between operators. But the number of
operators in the market were many, contrary to popular belief, with competition keen
among them.
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