Social Capital and Access to Credit: Evidence from Uganda

Transcription

1 Social Capital and Access to Credit: Evidence from Uganda Presentation at the World Bank Conference on Measurement, Promotion, and Impact of Access to Financial Services March 13, 2009 Anni Heikkilä, Panu Kalmi & Olli-Pekka Ruuskanen Helsinki School of Economics & Uganda Insurers Association

2 Agenda 1. Summary 2. Background 3. Objectives and framework 4. Empirical analysis 5. Conclusions 2

3 Summary of the study Our aim is to study how social capital affects access to credit, using FinScope Uganda survey data We extend the literature of financial access to consider issues of organizational choice Our results suggest that individual-level social capital is positively associated with access to loans As regards organizational choice, we find that social capital is an important borrower screening device for more informal financial institutions 3

4 Agenda 1. Summary 2. Background 3. Objectives and framework 4. Empirical analysis 5. Conclusions 4

5 Social capital can be an important determinant of financial development Examples of contributions in the field of economics Aggregate-level social capital Knack & Keefer (1997) La Porta, Lopez-de-Silanes, Schleifer & Vishny (1997) Individual-level social capital Glaeser, Laibson & Sacerdote (2002) Examples of papers related to financial development Calderon, Chong & Galindo (2002) Guiso, Sapienza & Zingales (2004) Hong, Kubik & Stein (2004) Karlan (2005, 2007)

6 Agenda 1. Summary 2. Background 3. Objectives and framework 4. Empirical analysis 5. Conclusions 6

7 We aim at several contributions to the literature Gaps in literature The role of social capital for financial access has only been considered in developed economies or in cross-country studies Existing studies on social capital and financial access mainly use aggregate-level measures of social capital Our contribution We consider the impact of social capital on access to credit in a developing country setting We use both individual and aggregate-level measures of social capital Existing literature studies financial access without paying much attention to the role of different providers We extend the literature of financial access to consider issues of organizational choice 7

8 We examine the effect of both individual and aggregate-level social capital Type of social capital Individual-level social capital Definition Quantity and quality of interpersonal relationships and trust Data source FinScope Uganda 2006 statement: I have many stable friendships and we support and trust each other Aggregate-level social capital General trust towards people World Values Survey Uganda 2001 question: Generally speaking, would you say that most people can be trusted? 8

9 Uganda has a diverse financial sector Formal institutions Semi-formal institutions Informal institutions Commercial banks, credit institutions Microfinance deposittaking institutions (MDI) Credit-only MFIs, not supervised by BoU Savings and Credit Cooperatives (SACCOs) Groups e.g. ROSCAs, ASCAs, Savings Clubs Friends, family, employer, shops, private moneylenders No credit from any source Regulated by Bank of Uganda 6% 3% 4% 25% 62% Percentage of Ugandans using loans from different sources (FinScope 2006) 9

10 We hypothesize that social capital affects access to loans from different institutions H 3: General interpersonal trust is associated with better access to credit (supply) Formal institutions Semi-formal institutions Informal institutions Commercial banks, credit institutions Microfinance deposittaking institutions (MDI) Credit-only MFIs, not supervised by BoU Savings and Credit Cooperatives (SACCOs) Groups e.g. ROSCAs, ASCAs, Savings Clubs Friends, family, employer, shops, private moneylenders H 1: Individual-level social capital is associated with better access to credit (trustworthiness) H 2: Individual social capital is more important for more informal institutions (group lending, social sanctions) Borrowers Borrowers Borrowers Borrowers 10

11 Agenda 1. Summary 2. Background 3. Objectives and framework 4. Empirical analysis 5. Conclusions 11

12 Our primary data is FinScope Uganda 2006 a survey of use of financial services FinScope Uganda 2006 is a nationally representative survey of access, demand and use of financial services Includes information about use of credit from different institutions and other sources (need to proxy access to credit with a use measure) Includes also information about respondents social connections and activities 2959 observations We also use World Values Survey Uganda 2001 and Census of Financial Institutions data 12

13 Results 1: Access to institutional loans (Probit) Social capital, individual 0.125*** (0.0335) Trust, regional average (0.0141) Agricultural production ** (0.0701) Primary education 0.108* (0.0644) Secondary education or more 0.197** (0.0644) Age *** (0.0066) Age squared *** (0.0066) Wealth quintile ** (0.0463) Wealth quintile (0.0533) Wealth quintile * (0.0764) Observations 1128 Notes: The dependent variable is an indicator taking value 1 if loans from any institution, 0 if other loans. Coefficients are the effect of a marginal change in the regressor on the prob. of having institutional loans. * significant at the 10% level, ** 5% level, *** 1% level 13

14 Results 2: Access to loans according to institution type (Multinomial logit) Formal institutions Semi-formal institutions Informal institutions Social capital, individual * 1.332*** (0.235) (0.264) (0.383) Trust, regional average 0.112** (0.054) (0.0667) (0.0923) Agricultural production *** (0.456) (0.512) (0.468) Primary education (0.575) (0.635) (0.345) Secondary education or more 1.794*** (0.545) (0.678) (0.488) Age 0.204*** 0.236*** 0.107** (0.033) (0.0729) (0.045) Age squared *** *** * (0.0004) (0.0009) (0.0004) Wealth quintile *** (0.381) (0.408) (0.296) Wealth quintile *** (0.413) (0.396) (0.414) Wealth quintile *** (0.476) (0.523) (0.615) Notes: Base category is probability of having taken non-institutional loans. No. of observations is * significant at the 10% level, ** 5% level, *** 1% level 14

15 Agenda 1. Summary 2. Background 3. Objectives and framework 4. Empirical analysis 5. Conclusions 15

16 Conclusions Our results suggest that individual social capital is positively associated with access to institutional loans, and it matters more for poorer and less educated people Importance of individual social capital appears to increase when the formality of the institution decreases People with low social capital may be excluded from semi-formal and informal credit Could formal providers be an option for these people? Formal financial institutions may require a high level of interpersonal trust in the areas where they operate 16