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Entrepreneurship is viewed as a major tool in the effort to address poverty in emerging economies. Yet financing for such entrepreneurial ventures remains a major challenge. To date, most research on financing of entrepreneurial ventures among those in poverty in emerging economies has focused on formal financial tools such as microfinancing. However, a far larger financing tool employed in practice is informal financing. Such financing takes the shape of loans by family/friends/neighbors, private money lenders, or rotating savings groups. Very little is known about how these finance tools affect entrepreneurship. This article reviews the existing literature on informal finance in emerging economies and then develops a rich research agenda for scholars on informal finance in emerging economies and its role in entrepreneurship. [ABSTRACT FROM AUTHOR]

Social capital is thought to be an important source of social cohesion and a key ingredient for socioeconomic expansion in developing nations. We study its role among street vendors and their money lenders in Caracas, an illegal business based solely on trust and social bonds. We analyzed demand and supply of credit by informal street vendors and money lenders, exploring the relationship between street vendors' assets, income generated, financial and human capital and financial strategies, and those of the money lenders. We found that street vendors' main source of working capital were money lenders, despite charging the highest interest rate. The kind and amount of credit was not correlated to higher incomes. On the supply side, we found that money lenders based their business almost exclusively on trust and manage all clients personally, which limits the growth of their business. This study suggests that the main constraint for increased productivity in the informal sector is not the cost of capital, but the transaction costs involved in accessing credit and a lack of legal enforcements, and that improvement of the lending business is difficult without institutional support. [ABSTRACT FROM AUTHOR]