Participation in Formal versus Informal Credit Markets in Mexico

This paper identifies factors that influence the decisions to take credits from formal and from informal sources in Mexico. Employing data from the Mexican National Survey of Financial Inclusion, the econometric results reveal a set of factors that have a positive effect on the choices of formal credit, but negative in the choice of informal sources (income, education, marital status, gender, and access to insurance), another set that statistically explains only the choice of formal sources (ownership of collateral, size of the household, financial savings, and ownership of cellphones), and a variable that only influences the use of informal sources (age). The study helps to improve our understanding of why participation in the formal sector in Mexico remains low relative to its informal counterpart.