Informal Financial Markets: Now and Then From pre-banking to Bitcoins

In preindustrial Europe, in the absence of banks, most financial transactions took place through inner circles, i.e. via peer-to-peer lending networks. Most of these credit transactions were in fact informal. The great majority of loans and exchanges were verbal agreements with no formal written contracts. The credit markets and the exchanges themselves were neither monitored, nor supervised, nor mediated in any way by institutions, either banking institutions or by the State. Social norms alone regulated informal credit markets. These informal exchanges were indeed sustained through strong norms of collaboration, fairness, and solidarity and deeply embedded in interpersonal relationships. It is estimated that nearly 90% of transactions in early modern England were carried out on credit (Muldrew, 1998). In Sweden, most  transactions were in fact peer-to-peer lending exchange, and this lasted long into the nineteenth century, alongside the emergence of banks (Lindgren, 2002). A chronic shortage of money as a medium of exchange made credit essential in daily transactions; but these markets were prolific also because they were highly embedded in local communities and social systems.


Today, the informal credit market is an important part of the financial system of developing countries. In the absence of banking institutions willing to extend small loans, informal credit markets often channel credit to the poor. These informal markets come in different shapes and forms but are very similar to those of pre-industrial Europe. In developing regions, peer-to-peer lending represents the majority of the exchanges. Rotating Saving and Credit Associations (ROSCAs) are also a popular form of combined peer-to-peer banking, where members save and borrow outside of banks. Such associations are formed by “a core of participants who agree to make regular contributions to a fund which is given, in whole or in part, to each contributor in rotation” (Ardener, 1964). Each association has its own rules and purpose, but the common denominator is trust between all the parties involved and a strong sense of mutual responsibility. These informal credit markets, just like their pre-industrial counterparts, have developed outside the scope of the authorities, and are not subsidized, regulated or supervised in any way. There is no mediating body, just peer-to-peer exchange. These credit circles appear like a safe way to save money for funerals, daily supplies, and even investments: they are regulated only through social norms, the behaviour of each member is monitored, and thus enforcement is made easy. In ROSCAs, social norms are a strong incentive to contribute and repay (Geertz, 1962). In South Africa, a country of nearly 57 million inhabitants, there are approximately 800,000 ROSCAs: black South Africans, from a community that has often had difficulty in accessing banking services, invest approximately 33 billion SEK in stokvels a year.


Now and then, informal local credit markets feature norms of solidarity, fairness and cooperation. These markets allow their agents considerable input regarding the terms of their agreement, either before contracting and/or afterwards, making renegotiation of the terms available at any time. In other words, these markets were and still are flexible.


In the western world, structural changes, such as the emergence of banking institutions, have affected the social and legal norms and nature of these markets. Private informal credit markets shifted from a market in which input and flexibility prevailed to a more rigid institutionalized market in which rules and rigor applied, driven by new norms, such as profit making. On the other hand, in developing countries, such informal markets continue to exist. In countries like South Africa, they even resist banking services. And yet, there is a current effort to ban these informal credit networks on the part of the authorities. The government perceives them as backward and as a gateway to money laundering. Just like in pre-industrial Europe, standardization of exchanges is gaining ground.


Recently, technology has added a new twist to informal credit markets. Many stokvels or ROSCA members in South Africa, for example, communicate via social media applications, such as WhatsApp and Facebook groups. In 2017, the first blockchain based ROSCA platform was developed utilizing smart contracts on the Ethereum network. These recent technological developments have undoubtedly eroded the traditional definition and social function of informal financial markets. In Sweden, the government has recently considered the introduction of a digital currency, the e-krona. It could be the first country to switch entirely to a cashless society, where informality will totally disappear. If more countries follow Sweden’s example and adopt digital currencies, what will happen to informality and flexibility? What will happen to the social fabric of communities? Can blockchains really replace trust and be a proxy for social norms?




One of the main objectives of this interdisciplinary symposium is to discuss and compare the characteristics, importance and functions of informal credit markets from the pre-banking era to the emergence of blockchains, Bitcoins and other crypto-currencies. Other fields of research to be examined are the structures of informal financial markets and the networks channeling credit flows, patterns of wealth circulation, the gender experience, the coexistence with banking institutions, and the current technological impact. This symposium proposes to highlight characteristics, common mechanisms, similarities, discrepancies, and differences across various periods of time and regions. It will be a unique occasion to gather together international experts from various disciplines for an enlightened discussion.


To better understand the challenge posed by technology, devoting attention to past practices is essential. In a world where the “de-personification” of exchange has loosened social ties between individuals, where technology and information can be a proxy for trust, and where banking institutions are an incontrovertible presence, we might ask what the place and future of informal credit markets are. By looking both at the past and the present, invited scholars will reflect on the meaning of informal credit markets and their future.


Main themes

In this symposium, invited scholars examine these issues and bring answers to questions such as:

– How did/do informal financial markets and networks form and work in practice?

– How did/do capital circulate and how was wealth transferred in informal financial markets?

– What is/was the impact of development on informal financial markets? And on the other hand, what is/was the impact of informal financial markets on development and GDP growth? Could/did informal credit markets alleviate poverty?

– How do/did informal financial markets and networks resist – or not – the establishment of banking institutions? How do/did they handle the competition with banks?

– What is/was women’s experience and role in informal credit markets? Are/were they empowered?

– Can Blockchain help tackle the informal economy and the financially excluded?

– Can technology be a proxy for trust and social ties and kill informal credit exchanges?




Informal Financial Markets: Now and Then

Create your website at
Get started