Financial Demand and Access to Credit in Low-Income Areas of Rio de Janeiro, Brazil

Abstract

This paper attempts to evaluate the determinants of financial andmicro-credit participation, furthermore it tries to identify the nature and degree ofcredit constraint in low-income urban areas of Rio de Janeiro, Brazil. This analysisis based on a cross sectional survey on 700 micro-enterprises clients and non clientsof microfinance institutions (MFI) in five areas of Rio de Janeiro.This study reports evidence that financial participation is partially linked to some asset and wealth characteristics. However, taking credit demand from microenterprisesinto consideration demonstrates the co-existence of several types ofrationing — quantity, price and eligibility — in the credit market. On the supplyside, this study shows that although MFI answer the needs of part of their clientsthanks to their dynamic incentives policies, they still have a poor outreach and tendto keep only “safer” clients. Both banks and MFI are rationing the market andespecially young micro-enterprises that have nevertheless important credit needs.