You Can’t Tell Tomorrow: Economic Uncertainty, Social Credibility, and Informal Lending in Ghana

• In Event: 118 - Section on Economic Sociology Refereed Roundtable Session and Business Meeting
  In Refereed Roundtable 60min: Table 08. The Development of Household Credit Markets

Abstract

Economic sociologists have demonstrated that even the most technological measures of “creditworthiness” in modern Western states can be imbued with moral judgments and meanings (Fourcade and Healy 2003). Financial instruments such as credit scores have accumulated widely-shared signals about the moral character of borrowers, with real implications for borrowers’ economic well-being. But how are creditworthiness and moral judgments related in markets where informal lending still dominates? Using original survey and interview data from Ghana, a lower-middle-income African country where the majority of the population remains “unbanked,” I argue that considerations of social credibility guide both borrowers’ and lenders’ decisions about where to seek credit. In particular, borrows access credit based on their perceived risk that different sources of money will damage their reputations, risks which Ghanaians assess based on heuristics built up from personal experiences. Despite a wave of policy efforts to promote financial inclusion and “pull” people towards the formal sector, Ghanaians—particularly poor Ghanaians—utilize formal financial services primarily when they are pushed out of the informal sector, either by lack of financial support from relations, or by previous bad experiences receiving informal gifts or loans from personal ties. Rather than being a trajectory from informal to formal loans, formal and informal financial markets are interpenetrated, with borrowers choosing sources of credit based on perceived relational and situational risk.

Author

• Lindsay Bayham, University of California-Berkeley