Microfinancing and informal lending in Bogota, Colombia: a study on informal microbusinesses

Introduction. Getting the necessary financing resources is a key factor for businesses to expand and being sustainable. In the case of small businesses in Colombia, getting such resources in the formal financial system might be a difficult task due to paperwork and requirements difficult to fulfill. Therefore, small businesses might look for other alternatives such as informal lenders (shark loans) outside the formal financial industry and microfinancing, a formal financing industry alternative with less requirements and rates higher than those offered by formal financing institutions. This article shows the results of a research that explores the perceptions that microentrepreneurs from Bogota, Colombia, have about informal lending and microfinancing. Methodology. The authors conducted a field trip during the fourth quarter of 2016. A non-probabilistic sample of 100 informal microentrepreneurs of Bogota was selected. Respondents answered a 10-section survey. The descriptive statistics methods and correlation analysis were then applied to find dependencies between the indicators. Results and Conclusions. Microfinancing still lags behind informal lending and its penetration is slow. More than 40% of entrepreneurs do not even know either what it is or any institutions that provide microfinancing services. Informal lending is still a way that many entrepreneurs use to finance their business, regardless the disadvantages in terms of costs that this option offers. It is therefore necessary that microfinancing institutions increase their visibility in the market. When consulted about their preference for characteristics of informal lending, entrepreneurs find them the least attractive of all. However, such an option is more expanded than other forms of credit. In our research, we have found no relation between any use of credit and the importance placed to different lending characteristics by the microentrepreneurs, except for ease of payment. Finally, it is important to note that development of formal banking services and increase of their availability is an important task for Colombia at the national level in terms of building modern and inclusive economy.