Ethnic networks and access to credit: evidence from the manufacturing sector in Kenya

It is often anecdotally observed that networks can facilitate exchange, but there are few empirical studies that explore the significance of such networks. In this paper, we analyze the impact of ethnic networks on access to finance of Kenyan firms using an exceptionally rich data set. We find that ethnicity does not affect access to formal sources of finance, but being a member of an ethnic group is significant in explaining access to informal sources of finance like supplier credit. We interpret, these results in terms of information and contract enforcement mechanisms that work within ethnic groups but not across them. (C) 2002 Elsevier Science B.V. All rights reserved.