The Relationships between Institutional and Informal Credit Markets in Rural Chile.

The paper analyzes the relationship between the institutional and informal credit markets in rural Chile. The institutional credit market comprises the conventional supplies of loanable funds, e.g., private commercial banks, state financial institutions and government reform agencies and their clients. The informal credit market consists of regionalized transactions of money goods and services among family, friends, shopkeepers, traders, landlords, farm laborers, and money-lenders to facilitate consumption, production, and trade. The analytical framework used spell out the necessary conditions for a two-sector agricultural credit market and provide theoretical footings for two possible types of relationships between these markets. Some propositions are presented for analysis of the Chilean case. The informal and institutional credit markets are differentiated on the supply side by terms of lending and nature of market operation. The number of farm operators seeking credit in the informal credit market exceeds the number seeking credit in the institutional credit market.