The Role of Informal Institutions in Microfinance

This study is about informal institutions in informal finance and microfinance in Jamaica and Trinidad-Tobago. Informal institutions are understood as unwritten social norms that cater to specific needs in the society, and can be indirectly captured and measured in their outcome. The institutional framework of this study helps capture the institutional dynamics and the processes in informal finance and microfinance. The framework demonstrates that informal institutions exist in both informal finance and formal microfinance, exposes the interface between financial intermediaries and the informal institutions through certain mechanisms like joint liability and social collateral that reduce information asymmetries and transactions costs. The study also includes an empirical investigation of client needs, preference and benefits that provides the evidence as to why they subscribe to informal institutions via the various financial intermediaries. Academics and students in the area of institutional analysis would particularly find this study of interest. The study also provides some insights to microfinance practitioners in the Caribbean regarding client preferences.