A Reassessment of the Drivers of Economic Informality in ...
Transcript of A Reassessment of the Drivers of Economic Informality in ...
![Page 1: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/1.jpg)
A Reassessment of the Drivers of Economic Informality in Peru
Opportunities in Mobile Application Technology
A Thesis
submitted to the Faculty of the
Graduate School of Arts and Sciences
of Georgetown University
in partial fulfillment of the requirements for the
degree of
Master of Arts
in Latin American Studies
By
Alana Maria Marsili, B.A.
Washington, DC
December 4, 2013
![Page 2: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/2.jpg)
ii
Copyright 2013 by Alana Maria Marsili
All Rights Reserved
![Page 3: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/3.jpg)
iii
A REASSESSMENT OF THE DRIVERS OF ECONOMIC INFORMALITY IN PERU
OPPORTUNITIES IN MOBILE APPLICATION TECHNOLOGY
Alana Maria Marsili, B.A.
Thesis Advisor: Barbara Kotschwar, PhD.
Thesis Advisor: Erick Langer, PhD.
ABSTRACT
Economic informality is the biggest obstacle in Peru’s formal business environment, particularly
for its largest actors: micro, small, and medium enterprises (MSMEs). As such, current levels of
informality threaten the sustainability of Peru’s formal labor force and enterprises. Two case
studies of the most important hybrid clusters, The Gamarra Market and Villa el Salvador and
Villa Maria del Triunfo, in Lima illustrate the ways in which the increasing trend towards greater
informality impedes entrepreneurial competitiveness. Financial Inclusion forms the basis for a
gradual, dynamic conversion to full economic citizenship. This thesis finds that there is a unique
opportunity to build formal relationships between those in the informal sector and formal
financial institutions through mobile technology. Mobile financial ecosystems can allow for
sectoral strategies to not only achieve financial inclusion but also promote and incentivize
economic formalization in the long-term.
![Page 4: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/4.jpg)
iv
“Your work is to discover your work and then with all your heart to give yourself to it”
-Buddha
The research and writing of this thesis
is dedicated to
My mother, sister, and father whose love and support are always with me.
Barbara Kotschwar, Erick Langer, Paul Weaver, Joseph Lynch, Kristyn Brown, The Heymanns
and all those who have helped along the way.
Many thanks,
Alana Maria Marsili
![Page 5: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/5.jpg)
v
TABLE OF CONTENTS
Chapter I: Introduction ...................................................................................................... 2
Context .............................................................................................................................. 7
Chapter II: Economic Informality ................................................................................... 19
Economic Informality: The concept ............................................................................... 20
Economic Informality and Peru: Empirical data and theoretical analysis ...................... 23
De Soto and the Legalist Perspective: 30 years of reform .............................................. 28
The Multidimensionality of Economic Informality in Peru: Root Causes ..................... 35
Chapter III: Micro, Small, and Medium Enterprises, Clusters, and Opportunity .......... 39
Informal and Formal Sector Competition: Micro, small, and medium enterprise ......... 41
Case One: Gamarra Market ............................................................................................ 50
The Gamarra Market: Informal roots .............................................................................. 51
Reforms: Positive results for formality ........................................................................... 53
Workforce: Informal and formal actors in The Gamarra Market ................................... 55
What Does Gamarra Mean to the Majority of Peru’s Socioeconomic Population ......... 58
Vertical vs. Horizontal Linkages .................................................................................... 61
Case Two: Villa el Salvador and Villa Maria del Triunfo .............................................. 63
Chapter IV: Formal Financial Inclusion ......................................................................... 67
The Benefits of Financial Inclusion for Peru’s Socioeconomic Levels .......................... 68
Assessing Peru’s Levels of Financial Inclusion.............................................................. 70
The Informal Credit System in Peru ............................................................................... 79
![Page 6: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/6.jpg)
vi
Chapter V: Mobile Based Solutions for Formal Financial Inclusion ............................. 84
Mobile Penetration and Benefits for Formal Financial Inclusion and Enterprise .......... 85
A Mobile Financial Ecosystem ....................................................................................... 90
Mobile Applications: Social and economic functions .................................................... 94
Policy Recommendation for Gamarra ............................................................................ 98
Policy Recommendation for The Villas .......................................................................... 99
Conclusion .................................................................................................................... 100
Bibliography ................................................................................................................. 102
![Page 7: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/7.jpg)
1
“LIMA, Peru — As Chinese-made motorcycle-taxis try to avoid minivans on the
chaotic and dusty outskirts of Peru’s capital, Lima, a glossy and incongruent
structure rises amid the street stalls and shanties: a new shopping mall.
“Soon, everything will be possible here,” reads a banner.”
-- Schipani, 2013, Financial Times and Washington Post
![Page 8: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/8.jpg)
2
Chapter I: Introduction
This thesis analyzes the issue of economic informality and offers an alternative approach
to formal market conversion in Peru. Historically, the process of converting informal markets to
formal markets, otherwise referred to as formalization, is not unknown - take as an example
black market trade in Russia after the collapse of the former Soviet Union – and the way in
which conversion takes place differs from country to country based on the unique circumstances
of each. Formalization within the circumstances unique to the Andean region and within those
unique to Peru in particular, has been addressed by theorists, such as Victor Tokman, Norman
Loayza, and Hernando de Soto, among others. However, recent developments, which this thesis
will explore, require that the question of formalization in Peru be revisited. This thesis provides a
renewed look at and alternative assessment of the informal market in Peru and, on this basis of
this analysis, offers policy recommendations for the Peruvian case moving forward.
Peru has one of the most informal economies in the world (Chapter II). The term
economic informality is used to describe all enterprises and productive activity that occurs
outside of the government’s legal and social protection. In the nineties, Peru underwent a series
of legal and regulatory reforms to make its formal market more accessible by the populace. A
broad base of Peru’s society before the nineties participated in an extralegal system. Extralegal
systems refer to all assets, entities, and productivity that occur outside of the formal legal
system. Structural reform was led by the Institute of Democracy and Labor (ILD) and was
successful in the creation of a formal property rights system. Extralegal land was converted into
formal assets that could be used as collateral in Peru’s formal banking system. Reforms during
this time were also successful in reducing the costs, requirements, and time associated with
![Page 9: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/9.jpg)
3
registering a business, which has brought thousands of enterprises into the formal sector over the
last two decades.
Despite reform successes, Peru’s economic informality persists on a large scale,
suggesting that beyond law and regulation other factors continue to maintain and fuel its
informal economy. Through the assessment of three other popular perspectives on informality, I
argue that Peru’s informality is the result of a strong network that historically acted as a social
safety net and provider of work opportunity for the formally excluded, unemployed, and rural
migrants in urban cities, particularly Lima. Trusted and familiar informal network systems can
be used to explain the economic informality in Peru that remains impregnable to the legal and
regulatory means of formalization.
Over 70 percent of Peru’s formal labor force and formal enterprises have cited
competition from the informal sector as the biggest challenge to their businesses. Competition
against unregistered and informal firms was the number one obstacle for formal firms operating
in Peru’s business environment. Informal sector competition spans a multitude of industries and
sectors, which include: textiles and garments; food; chemicals, plastics, and rubber; basic metals,
fabricated metals, machinery & equipment; other manufacturing; retail; and other services
(World Bank Enterprise Surveys, 2010).
In 2102, Peru was one of the fastest growing economies in Latin America. Peru’s
economic growth and market opening have contributed to greater socioeconomic mobility and
the entrance of multinational companies to service a new consumer market in Lima and urban
areas throughout Peru. Investments in the construction of new housing and retail infrastructure to
support an emerging consumer market in Lima has the potential to threaten the sustainability of
![Page 10: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/10.jpg)
4
two of Lima’s most important hybrid formal and informal markets, The Gamarra Market and
Villa el Salvador and its co-cluster, Villa Maria del Triunfo. The Gamarra Market has long been
the preferred shopping center for the majority of Lima’s populace and is home to the city's most
notable concentration of formal and informal micro, small, and medium enterprises
(MSMEs). Peru’s formal labor force is part of the rising consumer class that is expected to move
into the newly constructed homes and shop at newly constructed shopping centers. The
construction demand has been serviced by the hybrid formal and informal carpentry cluster, Villa
el Salvador. The emergence of multinational shopping centers threatens the sustainability of
Gamarra’s formal enterprises if they continued to feel pressured by informal firms within the
cluster, whom are also at risk with the new market competition. The pressure formal MSMEs are
experiencing from informal firms and their potential losses to multinational market competition
could have an effect on their future socioeconomic mobility. Formal MSME workers make up a
large portion of Lima’s mobile socioeconomic classes, if they are unable to purchase new homes,
a housing bubble could translate into losses for the carpentry cluster, Villa el Salvador, as they
are the primary service for the construction boom.
Endogenous to economic informality is the challenge posed by a lack of financial
inclusion (Chapter III). Peruvian participation in formal banking is among the lowest in Latin
America. Tied to the issue of financial inclusion is the issue of informal credit. This thesis
argues from the perspective that economic informality has created an endogenous informal credit
system. Economic informality encompasses an informal credit system, however, in the current
discussion, informal credit will be referred to as a separate entity in order to highlight a primary
argument of this thesis: namely, that informal credit acts as the glue in the informal system,
![Page 11: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/11.jpg)
5
without which the system would collapse, and in so doing it maintains a privileged
function/position in the informal economy with regard to all other aspects of that economy. On
these grounds, tackling the informal credit system stands out as a unique and efficient way to
broadly begin to deconstruct economic informality. Peru’s formal enterprises in Lima depend
upon a solution for a reduction in the competition they experience from an exacerbated informal
economy.
Mobile phones, as information and communication technology providers, create a broad
basis for a platform in which mobile applications can be used to develop initiatives that promote
economic formality in various industries and sectors. Mobile technology has recently become
the developing world’s most popular tool for formal financial inclusion (Chapter IV). A study
by Vodafone found that 50 percent of M-Pesa , a popular mobile finance project in Kenya, had
never used a formal bank before the introduction of the product. In 2013, the Peruvian
government passed legislation that supported mobile technology as bridge to social and financial
inclusion. Peru has yet to test any mobile banking projects with its unbanked population,
however, 100 percent of the population has a cell phone and 65 percent of those subscribers are
assumed to be banking informally. This thesis recommends that initial policy should support the
creation of a mobile financial ecosystem. Once an ecosystem of mobile financial users has been
established and formal bank relationships created, policy should begin to explore the ways in
which mobile applications can assist in incentivizing formalization. This thesis offers a
framework for mobile applications that extend beyond social to economic functions and provides
mobile application examples that could be used to assist in incentivizing broader formal
![Page 12: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/12.jpg)
6
conversion in The Gamarra Market and The Villa el Salvador and Villa Maria del Triunfo
clusters.
Peru’s current level of informality could be detrimental to the growth of its formal sector
if informal sector levels are not reduced (Chapter V). The reforms led by the ILD and carried
out by the Peruvian Government have made the formal sector more welcoming for the majority
of the Peruvian population. Lima provides the most immediate opportunity for formalization
within large clusters of enterprise that, at present, are competing within their very own structures
and restricting growth potential. This thesis offers an alternative approach to addressing
economic informality, incorporating formal financial inclusion, to begin to create relationships
between a broad base of the informal sector and Peru’s formal financial institutions. These
relationships can be used as the foundation for sequentially targeted initiatives by formal
stakeholders in areas where formality would have the most lasting benefits for the welfare of the
citizens and the health of the economy. This thesis recognizes that within and outside of urban
areas, Peru will most likely maintain a hybrid model, as is the case throughout the region.
However, this thesis argues from the position that the disadvantages of the current levels of
economic informality for the overall populace outweigh any benefits that may be associated with
informality. Using mobile platforms as a tool to incentivize key informal sectors to begin
processes of formalization will have benefits for a multitude of formal sectors in the Peruvian
economy.
![Page 13: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/13.jpg)
7
Context
Peru has one of the most vibrant upper middle income economies in the world today. As
a result of an export-led mining boom, driven by an industrializing Asia and the 2008 global
economic crisis (Figure 1), Peru’s was one of the fastest growing economies in Latin America in
2012.
Figure 1. GDP growth (annual %), 2012
Source: World Bank World Development Indicators database.
Mass migrations throughout the last century have driven the majority of the population to
major cities, with the most notable growth in the capital city, Lima. Peruvian Economist,
Hernando de Soto, found that in 1940 two out of every three people lived in the countryside,
-2
-1
0
1
2
3
4
5
6
7
![Page 14: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/14.jpg)
8
whereas, by 1981 two out of every three people were living cities (de Soto, 1989)1. In 1940 less
than 10 percent of the population was living in Lima; that number has more than tripled to one-
third of the population in 2013 (De Soto, 1989)2. Since the 1980s, changes in Peru’s
macroeconomic model and increasing opportunities in the city, continued to drive urban
immigration. As a result, since the eighties, urban agglomerations of one million or more have
nearly doubled (World Bank Development Indicators, 2013).
Urban growth is being met by well-targeted social and economic programs that support
and expand Peru’s middle class3. Peru’s current President, Ollanta Humala, committed his
administration to reducing the poverty rate and allowing for more socioeconomic mobility and
the growth of a middle class. For example, President Humala has set in motion a two-prong plan
to reduce Peru’s poverty rate to 15 percent by 2015 by, on the one hand, using socially targeted
conditional cash transfer programs (CCTs) and, on the other hand, increasing minimum wages
and pensions.
In less than a decade Peru has been successful in halving poverty, with 28 percent of the
reduction following the introduction of the CCT, Juntos, in 2005 (Figure 2). Juntos (Together), is
a CCT government program that provides cash to the poorest families based on the following
criteria: recipients must have children under the age of 14, must enroll their children in school
1 De Soto uses a number of indicators to explain the mass migration during the 1940-1980s. He attributes
some of the main drivers of migration to be: the construction of highways, new modes and forms of
communication, the agricultural crisis, a civil war in the countryside, better wage earnings in the city,
more employment opportunities, and the amenities and the general comforts that city life offered 2 New forms of communication allowed migrants to see that in Lima and other large cities that infant
mortality rates were lower there was greater access to healthcare and better education. 3 In 2010, Peru mined $18 billion worth of minerals, which accounted for 12 percent of the country’s
gross domestic product (GDP). Peru used its mining wealth to invest in sustainable development
initiatives that aided in the socioeconomic mobility of its urbanizing population.
![Page 15: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/15.jpg)
9
and have them vaccinated, and pregnant mothers are required to utilize mandatory pre- and post-
natal healthcare programs. Juntos, has grown exponentially in 5 years, reaching more than half of
Peru’s 25 departments and 20 times the number of recipient households since its introduction.
The table below (Table 1) shows the program’s growth by years in terms of departments,
provinces, districts, and number of recipient households reached.
Figure 2. Peru Poverty Headcount Ratio at National Poverty line (% of population)
Source: World Bank World Development Indicators database.
0
10
20
30
40
50
60
70
2004 2005 2006 2007 2008 2009 2010 2011
![Page 16: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/16.jpg)
10
TABLE 1. Growth of Juntos CCT by year and by sub regional entity, 2005-2010
Year Departments
Provinces Districts Number of Recipient
Households
2005 4 26 70 22,550
2006 9 67 320 159,224
2007 14 115 638 353,067
2008 14 115 638 420,491
2009 14 115 638 420,574
2010 14 115 638 468,136
Source: Adapted from Juntos (www.juntos.gob.pe).
President Humala has also committed to improving conditions for the labor sector. In
2013, after Peru increased minimum wages for the 7th
time in a decade, Labor Minister, Jose
Villena, said, “The only way to defeat poverty is by multiplying dignified work opportunities for
all working-age Peruvians” (Peruvian Times, 2012). The average minimum wage has grown 14.5
percent annually in the past 20 years and 6.2 percent annually in the past decade (Figure 3).
Lima’s average monthly wages have continued to surpass the country’s averages as a whole,
which provides a partial explanation for the consistent pattern of migration to the country’s
capital (Figure 4).
![Page 17: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/17.jpg)
11
Figure 3. Peru Yearly Minimum Wage, 1991-2013
Source: INEI PERU, Instituto Nacional de Estadística e Informática.
Figure 4. Average Monthly Wages in Lima Compared to the National Aggregate, 2004-2012
Source: INEI PERU, Instituto Nacional de Estadística e Informática.
0.00
100.00
200.00
300.00
400.00
500.00
600.00
700.00
800.001
99
1
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
Min Wage
0.0
200.0
400.0
600.0
800.0
1000.0
1200.0
1400.0
1600.0
2004 2005 2006 2007 2008 2009 2010 2011 2012
Lima
Total
Rest of the Country
![Page 18: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/18.jpg)
12
The program Juntos and Peru’s rising incomes are contributing to a continuous stable
growth pattern of poverty reduction, socioeconomic mobility, and an emerging middle class. By
2011, the middle class in Peru grew from 15 percent to 20 percent of the population (Pozo-
Vergnes, 2013). Access to more disposable income at the base and middle of the pyramid has
propelled household consumption. In Lima, by 2012, daily food needs were estimated to be
2,500 tons of cereal, 4,000 tons of vegetables and tubers, 2,125 tons of fruit, and 1,615 tons of
milk (Minges 2012; Cáceres-Barrantes, 2012).
Supermarkets and formal retailers are aiming to service this growing consumer demand;
however, the majority of Peru’s formal enterprises and formal economically active population
face the competition of a large informal sector. Formal micro, small, and medium enterprises
(MSMEs) are Peru’s most important labor segment, accounting for 72 percent of Peru’s formal
economically active population (Cáceres-Barrantes, 2012). In 2010, 73 percent of formal Small,
Medium, and Large (SML) enterprises in Peru’s food sector citied competition against
unregistered or informal firms as a major constraint to their enterprise, according to the World
Bank Enterprise Surveys. Although the informal grocery retail sector has existed in Lima for
centuries, recorded statistics did not begin to emerge until much later. In 1989, Peruvian
Economist Hernando de Soto discovered that 60 percent of grocery retail sector was carried out
in an informal or extralegal4 sector.
Today, the informal sector continues to be the primary produce provider for migrants and
low-income citizens in Lima and throughout principal cities in the provinces. Low-income
consumers and migrants are now part of Peru’s rising middle class, yet they have established
4 Extra-legal refers to those whom operate outside of a legal system.
![Page 19: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/19.jpg)
13
relationships with informal vendors and enterprises and are reliant on the informal credit that the
vendors have long been providing to them. Larger multinational supermarkets recognizing the
importance of the informal sector to the majority of consumers in Lima have contributed to
informal growth and credit distortions. For example, the Chilean supermarket Tottus, has
vertically integrated informal produce markets and created their own credit system in low-
income neighborhoods. Research found that the credit system for multinational companies
accounts for a large share of their retail profits (Cáceres-Barrantes, 2012).
While increasing channels of retail credit offerings for consumers is beneficial to an
emerging middle class economy, in Peru, multinational involvement in the credit system and the
informal produce supply chain – which receives multinational support – complicates the actions
Peru’s formal MSMEs are able to take in order to compete with the informal sector. The
provision of credit would make MSMEs competitive against multinational companies and the
informal sector, both of whom provide credit for consumers. However, formal MSMEs are
traditionally not large enough or capital intensive enough to provide credit systems to their
customers. The food sector is one of many hybrid formal and informal sectors that continue to
challenge the sustainability of Peru’s formal micro, small, and medium enterprises.
The strength of the informal sector’s enterprise and credit system gives insight to a
sophisticated extralegal web of economic relations that govern the productivity of 60 percent of
the country’s GDP. What is most puzzling about the active role that informal and retail credit
systems have in low-income and migrant communities is that Peru has one of the best formal
financial systems in the world, which includes commercial banking, microfinance, and regulated
institutions (EIU, 2011). Despite the strength of formal credit and microfinance, Peru has among
![Page 20: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/20.jpg)
14
the lowest formal banking participation rates in South America, which can be explained by the
fact that credit provision is taking place in the informal sector (World Bank FINDEX, 2011).
Recent opportunities for socioeconomic mobility and the sustainability of Peru’s growing
middle market require a reassessment of two fundamental economic challenges Peru is facing:
economic informality and formal financial inclusion5. Initiatives and reforms to increase
economic formality and formal financial inclusion have acted as a chicken and egg problem for
economists and policy makers. The two entities are endogenous, yet have often received isolated
solutions. Peru began tackling its challenges with economic informality and formal financial
inclusion in the eighties through a series of regulatory, financial, and legal reforms incited by the
seminal work of Hernando de Soto6.
Hernando de Soto established a framework that sparked thirty years of dual sector
reforms – one set of reforms in the legislative and regulatory environment and the other set of
reforms in the commercial banking system. Throughout the nineties, former Peruvian President
5 In Peru the term used to describe formal financial inclusion is bancarazation. Bancarazation refers to the
use of and access to formal financial services. 6 De Soto’s reform focus on legislative and procedural changes has yielded many positive results for the
formal market. His famed works, The Mystery of Capital and The Other Path, brought global attention to
Peru’s economic informality in the eighties. He argued that the success of growth and entrepreneurship in
the United States was largely built from the integration of extralegal agreements into a unified formal
property rights system. De Soto asserted that the formal property rights system could be used by the
informal sector and micro entrepreneurs as the basis for formal financial inclusion, which would translate
into business investments and credit provision. Economists have argued that collateral used for formal
financial inclusion is a mechanism that not only expands market opportunities, but fosters technological
progress and innovation for MSMEs (Schumpeter, 1985; King and Levine, 1993). In 1987, the think tank
De Soto founded, Institute of Democracy and Liberty (ILD), estimated Peru’s informal property market to
be full of “dead capital” valued at $80 billion dollars. Dead capital is all land holdings that lack a legal
title. De Soto argued that this capital could be transformed into legal structures and used as a guarantee
for formal bank loans. De Soto contended that for as long as extralegal systems locked capital into an
informal sector, a developing economy would not be able to grow past subsistence and that, furthermore,
the informal sector’s dwellers and workers would remain precluded from the formal banking system and
other formal opportunities.
![Page 21: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/21.jpg)
15
Alberto Fujimori successfully implemented a multitude of regulatory and formal market business
reforms. During his presidency, a more inclusive formal property rights system was established,
bureaucracy was simplified, and the judicial system was strengthened. In less than 30 years,
regulatory and legal reforms have resulted in $6.3 million in legal titles, brought 380,000
enterprises into the legal system, generated 560,000 legal jobs, resulted in a red tape cost savings
of $254 million, and an increase in tax revenues by $300 million per year, resulting in $10 billion
of net benefits to the poor, according to the ILD (McKechnie, 2006). In 2012, Peru was ranked
the second friendliest country in Latin America for Doing Business (World Bank Doing Business
Indicators, 2012).
Fujimori has also been credited with the creation of the microfinancial sector. Prior to the
eighties, most of the credit provision in Peru was through informal channels, with the exception
of a few poorly designed state-led and underfunded non-governmental organization (NGO)
lending projects. The need for a formal credit system that would service the new legal property
market was an integral part of reform planning for the government in the eighties and the
nineties. Peru began commercial bank reform through a series of bilateral partnerships between
commercial banks and NGOs. In 1998, Fujimori created the first commercial bank dedicated to
microfinance, MiBanco. In 2010, Peru’s microfinance climate ranked the best in the world for
the third time consecutively by the Economic Intelligence Unit. By 2011, Peru had the greatest
number of commercial bank branches and geographic branch coverage in Latin America (World
Bank FINDEX, 2011; Mas, 2008). In 2013, the country had over 72 regulated microfinancial
![Page 22: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/22.jpg)
16
and commercial bank institutions and 2,400 bank agents (the fourth largest bank agent network
in the world) (MarketMix, 2013).7
Peru’s remarkable thirty-year tale of regulatory, legal, and financial reforms still bears a
large underbelly of economic informal sector that is not engaging in formal finance. In 2013,
Peru was the third most informal country in Latin America and the sixth most informal country
in the world. Informal economic productivity accounts for over 60 percent of Peru’s GDP
(BBVA, 2013). In 2013, only 28 percent of adults received formal bank loans as a percent of
GDP and only 22 percent of microfinance’s target market had an outstanding loan at least one of
the regulated institutions (MarketMix, 2013; AQ, 2013).
This thesis will revisit root causes of economic informality and formal financial inclusion
in order to ascertain why, despite the positive results from well-targeted reforms, the informal
sector remains large and formal financial institutions exclusive. On the basis of this analysis the
second part of this thesis will offer policy recommendations. The thesis argues in favor of the
position that economic formalization is a sequential and gradual process. As such, the process is
a continuum and not all industries and sectors will follow the same path or process, nor will they
achieve the same outcomes. This thesis finds that economic citizenship is necessarily preceded
by a phase of formal financial inclusion. Economic citizenship is used to refer to the perspective
of the individual or enterprise engaged in formal processes provided by the state, which can
include legal employment and the registration of their business. Economic formality is used to
7 As a result of commercial and microfinancial reforms, Lima’s migrant district, Los Olivos, underwent
formal conversion. In the nineties, the Los Olivos district was overrun with economic informality and
informal credit providers. By 2010, the district had 18 formal financial institutions along three city
blocks that specialized in services for low-income earners and the entrepreneurial segment of the
population. The conversion has resulted in overall positive growth for the district (Webb, 2010).
![Page 23: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/23.jpg)
17
refer to the perspective of the state, whereby productivity is within the legal and social protection
of the government. Between a formal relationship with a bank and the degrees of economic
formality the steps and processes will differ from country to country. As Chen (2012) observes,
formalization should be seen as an on-going process with incremental steps and alternative
dimensions that lead toward varying degrees and types of formality. Peru’s broader institutional
environment has shown all of the necessary improvements in its policy environment, trade terms,
and legal frameworks for an accessible and friendly formal market. The persistence of a large
informal sector that threatens the competitiveness of the formal sector suggests the need for
alternative approaches to the dimension in which formalization is addressed. This thesis argues
from the position that the informal credit system is a pillar that supports Peru’s economic
informality. Efforts in formal financial inclusion stand out as a unique and efficient way to begin
to deconstruct one of the tenets of economic informality. Formal financial inclusion can be
viewed as a primary step in a sequential process, whereby economic citizenship could be an end
result for various individuals in the informal sector. Providing incentivizes to increase
formalization for various sectors of informal industries is pertinent to the sustainability and
competitiveness of 72 percent of Peru’s formal labor force and over 80 percent of its micro,
small, and medium enterprises who’s biggest challenge is unregistered or informal firms (World
Bank Enterprise Surveys, 2013; Cáceres-Barrantes, 2012).
Buttressed by the first section (chapters II-III) of this thesis the second part of this thesis
(chapters IV-V) offers just such an alternative solution to a primary and necessary step in
deconstructing economic informality through formal financial inclusion, using mobile
technology. The Peruvian government recently passed legislation that encourages mobile
![Page 24: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/24.jpg)
18
banking platforms to promote social and financial inclusion. The conclusion of this thesis
provides a framework for which Peruvian banks and the government can use to direct policy
initiatives. It has been estimated that 65 percent of the Peruvian population is banking
informally and the country’s mobile penetration has reached 100 percent8. Mobile phones
demonstrate a clear path for bringing formal financial services to a greater share of the Peruvian
population through mobile technology (BMI, 2013). Formal financial inclusion forms the basis
for a continuum to economic formality, which will be necessary to protect the growth and
sustainability of three-quarters of Peru’s formal labor force and registered enterprises.
8 Mobile penetration refers to the number of active mobile users.
![Page 25: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/25.jpg)
19
Chapter II: Economic Informality
Informality is a pervasive and persistent economic feature of most developing economies;
this chapter will begin with an overview of the concept of economic informality. The chapter
will use a theoretical and empirical analysis to best illustrate the multidimensionality of the
informal economy. The chapter will shed light on the heterogeneity within the informal
economy, which should be kept in mind for various types of ways policy can address informality
within an industry or sector. For example, Economic Informality: The concept demonstrates the
various typologies of informality, Economic Informality and Peru: Empirical data and
theoretical analysis, then further disaggregates these typologies into type of informal
employment, industry, and gender that also can be applied to the assessment of the informal
economy. De Soto and the Legalist Perspective 30 years of reform, accounts for the structural
reform Peru has underwent to reduce barriers to entry in the formal market as well as the
progress the country has made in becoming a hospitable formal business environment for
enterprises. Gamarra’s formal enterprise growth after 1993 can be attributed to these reforms
and will be discussed at length in the next chapter. The Multidimensionality of Economic
Informality in Peru: Root causes uses four perspectives to show the roots of the informal sector
and perspectives that better illustrate the persistence of the informal economy despite positive
wider institutional reforms. These perspectives will provide a framework of analysis for the two
cluster case studies discussed in Chapter III, The Gamarra Market and Villa el Salvador – Villa
Maria del Triunfo.
![Page 26: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/26.jpg)
20
Economic Informality: The concept
Informality is an umbrella term that has been used to describe the heterogeneity of
economic activities partially or fully outside of the ken of government regulation, taxation, and
observation (World Bank, 2013). Informality’s size, value, and global importance have revived
an interest by scholars, policy makers, and governments in formalizing the sector. The World
Bank (2013) finds that there are various reasons why governments would be concerned about a
large informal sector, with evidence showing that informality can have significant and
potentially negative consequences for a society and its institutional parts. A large informal
sector can undermine social cohesion, disrupt law and order, result in incomplete coverage of
formal social programs, contribute to losses in formal economic competitiveness and growth, and
result in fiscal losses for a government as a result of undeclared economic activity. The World
Bank postulates that for most governments, these concerns outweigh any advantages that the
informal sector offers as a source of job creation and as a safety net for the poor. Guillermo
Perry and William Maloney’s (2007) report, Exit and Exclusion, support the position of the
World Bank and find that informality hinders a country’s true economic growth potential and
fails to keep up with rising standards of social well-being. Their report finds that informality is
corrosive to the integrity of society and has a negative impact on productivity and welfare. Chen
(2012) argues that there are multi-dimensional benefits of formality, which extend beyond
registering and paying taxes for formal workers and enterprises. Formal workers and formal
firms enjoy legal and social protections, such as, tax holidays and incentive packages as well as
rights to organize and have a representative voice in rule-making and policy processes.
![Page 27: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/27.jpg)
21
The complexity of defining the informal sector has presented obstacles in its analysis and
study (Perry and Maloney, 2007). In August 2012, Martha Alter Chen of the Women in
Informal Employment Globalizing and Organization (WIEGO) released a comprehensive report
on the informal economy, which brings up to date the definitions, theories, and policies being
used worldwide to understand the sector. There are three official statistical definitions of
informality that have often been used interchangeably and inconsistently. In 1993, The
International Conference of Labor Statisticians (ICLS) defined the informal sector as the
production and employment that takes place in unincorporated small or unregistered enterprises.
In 2003, the conference expanded the definition to informal employment as employment without
legal and social protection—both inside and outside the informal sector. The most recent
definition of the informal economy references all units, activities, workers, and the output from
them, together forming a broad base of the workforce and economy, both nationally and
globally. Below, Table 4, shows the typologies of employment that can be found within the
informal sector or can constitute as informal employment within the formal economy.
![Page 28: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/28.jpg)
22
TABLE 4: Licit Typologies of Informality
Licit Typologies of Informality
Primary and Secondary Activities
Farmers and market gardeners,
building/construction contractors, miners,
artisans, shoemakers, tailors, and beer-alcohol
brewers
Tertiary Enterprises with Relatively Large
Capital Inputs
Housing, transport, utilities, and commodity
speculation
Small-Scale Distribution Market operatives, petty traders and street
hawkers, caterers in food, bar attendants,
carriers, commission agents and dealers
Other Services Musicians, launderers, shoe shiners, barbers,
trash collectors, photographers, vehicle repair
and other maintenance workers, brokers and
middlemen, those who practice ritual services,
magic, and medicine.
Source: Adapted by: WEIGO, 2013; Hart, 1972.
![Page 29: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/29.jpg)
23
Economic Informality and Peru: Empirical data and theoretical analysis
Peru is the sixth most informal country in the world and the third in Latin America (Figure 5).
Figure 5: Global Informality and a focus on Peru, 2013
Source: BBVA, 2013.
Informal economic productivity is estimated to account for over 60 percent of Peru’s
GDP, which is valued at an estimate of over $118 billion dollars per year (BBVA, 2013;
Tokman, 2008; Perry, 2007). The Peruvian government is believed to lose about $5.2 billion
dollars per year as a result of tax evasion, a common symptom of informal productivity (Pozo-
Vergnes, 2013). Chen (2012) argues that the informal sector is more complex than the sum of its
parts would suggest. The latest informal data on Peru estimates that 70 percent of the labor force
![Page 30: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/30.jpg)
24
is employed informally. Informality as an umbrella term to describe employment status is often
aggregated. Informality can be segmented by sector of the economy, place of work, status of
employment and within those segments by social group and gender. To begin to disaggregate
Peru’s total of informal employment the World Bank Enterprise Surveys (2013) find that roughly
49 percent of total informal employment is within the informal sector and 22 percent of informal
employment is within the formal economy. Below, Table 5 shows a disaggregated view of
informality as it relates to employment by sector and gender.
TABLE 5: Informal Employment in Peru by Sector and Gender
Informal Employment in
Peru by Sector and
Gender
Persons in Informal
Employment
Persons Employed
in Informal Sector
Informal Employees
working for formal
firms
Non-Agriculture
Employment
(2009)
69.9% 49% 21.7%
Female
(2009)
75.7% 54.3% 22.2%
Male
(2009)
65.1% 44.4% 21.3%
Informal Sector Aggregates
Agriculture (2001) 44%
Commerce (2001) 36%
Services (2001) 11%
Industry (2001) 8%
Source: World Bank Enterprise Surveys 2010, Alvarado et al., 2001.
![Page 31: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/31.jpg)
25
These statistics can then be further disaggregated into the licit typologies mentioned in
Table 4. The status of employment among the various typologies can range from temporary, day
laborer, contractual worker, verbal agreement, to business owner, depending on the sector and
place of work. Within these segments the majority of social groups that participate in the
informal economy are estimated to be from the middle to lower socioeconomic classes. It is
clear that the informal sector is heterogeneous and multidimensional, although, the one thing all
informal workers have in common is that they lack legal and social protection (Chen, 2012).
The informal sector has produced a myriad of scholarship, which ranges in themes from:
size and composition; drivers or roots causes; consequences in terms of welfare or productivity;
and the linkages that exist between formality and informality and growth, poverty, and
inequality. Chen (2012) finds that analysis and research on the distant phenomena of the
informal sector has resulted in the emergence of four predominant schools of thought: the
dualist, the structuralist, the voluntarist, and the legalist. Each of these schools of thought has
explanatory power when assessing drivers of economic informality in Peru.
The dualist perspective examines the logic of survival and sees the informal sector as a
result of the labor surplus for jobs and individuals producing, selling, and seeking solutions as a
means of survival (Chen, 2012). Throughout Peru’s recent history from the sixties to the
nineties, violent insurgencies, such as, The Sendero Luminoso (Shining Path), in rural areas
followed by the Túpac Amaru Revolutionary Movement (MRTA) in Lima and the Amazon,
forced a mass migration of rural peasantry to urban settlements where they joined the informal
sector upon arrival. Established migrant networks in cities provided an employment safety net
for the informal sector. Rural Peruvian migrants gravitated to small informal sector industries
![Page 32: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/32.jpg)
26
that were beginning to emerge, such as the textile industry, which required rudimentary labor
skill and equipment. Other factors such as drought, flood, overpopulation, and decline of
agriculture, were other primary drivers of the urban informal sector, as established networks
became a means of survival.
The structuralist argument takes the logic of survival and looks at new activities
generated by the logic of decentralization, in the context of rapid economic opening (Chen,
2012). In the sixties and the seventies, U.S. capitalists and the Alliance for Progress influenced
Peru’s economic and political structure and put pressure on modernization. The new economic
model created unbalanced growth throughout the country. As a result of uneven growth patterns,
unemployment surged and more and more of the populace were absorbed by the informal sector
(Marcelli and Madjd-Sadjadi, 2010). The Peruvian nineties were also marked by a change in
Peru’s economic model, through initiatives such as market liberalization, the Washington
Consensus, and privatization of enterprise. Consequently, economic opening and privatization
resulted in the layoffs of a number of public sector workers. Former public employees turned to
the informal sector for opportunity (Pozo-Vergnes, 2013).
The voluntarist argument focuses on informal entrepreneurs who chose to avoid
regulations and taxation but, unlike the legalist school, argue that informal operators chose to be
informal after a cost-benefit analysis (Chen, 2012). The voluntarists of Peru are those who have
become entrenched in informal social networks and are unable to see the benefit of leaving. This
argument can be applied to a number of individuals and entrepreneurs in Peru and is an on-going
challenge within the informal market sector.
![Page 33: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/33.jpg)
27
The legalist argument looks at the costs and time associated with a broad range of
indicators: excess regulation, poorly designed institutions, bureaucratic procedures, and the
judicial system as explanatory factors for a country’s economic informality (Tokman, 2007;
Chen, 2012). Porter (2000) cites the following structures as important when honing into the root
causes of informality: a country’s bureaucracy and corporate governance, regulations, red tape,
legal enforcement, intellectual property, the tax administration, rule of law, and labor market
policies. Legalists say that an overburdening formal legal system can lead the self-employed to
operate informally with their own informal extra-legal norms. Hernando de Soto used the
legalist perspective as a point of departure in the eighties for the implementation of a broad
program of reform in Peru during the nineties.
![Page 34: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/34.jpg)
28
De Soto and the Legalist Perspective: 30 years of reform
Hernando de Soto’s legalist perspective has been used to improve procedural and
legislative obstacles that challenged the informal market in the eighties and has provided the
groundwork for the on-going reforms in the legal and business regulatory sector today. He
argued that formalization was not only important for taxes, but also for innovation, growth, and
labor welfare standards. Formalization contributes to the welfare of individual citizens through
legal and social protections, such as, tax holidays, fair wages, safe working conditions, pension
programs as well as rights to organize and have a representative voice in rule-making and policy
processes.
In the early eighties, de Soto hired two law graduates to count the number of laws and
regulations Peru had passed since World War II. They were astounded to find that the Peruvian
governments had enacted an estimated 28,000 economic laws and regulations a year (Clift,
2003). De Soto then hired a few more university students and tasked them with assessing
bureaucratic procedures and hurdles small and medium enterprises faced when completing the
necessary procedures for obtaining a business license. To do this, they set up a small garment
factory with two sewing machines in a shantytown. It took the students 289 days and an
incurred cost of 32 times the average monthly minimum wage before they received the license
(de Soto, 1989). De Soto was personally able to see how expensive and time-consuming
bureaucratic procedures in the formal market were and discerned that they were a major barrier
to formal market entry and the reason so many people avoided the formal market.
De Soto spent the early eighties working out of the think tank he founded determined to
get to the root legal and bureaucratic causes of informality that he felt were dividing Peru. He
![Page 35: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/35.jpg)
29
found 90 percent of all small industrial enterprises, 56 percent of all businesses, 86 percent of
urban transport, 60 percent of Peru’s fishing fleet, and 60 percent of grocery retail was carried
out in the extralegal sector because the law and bureaucratic regulations made it impossible for
these workers to operate with the formal structures in place (Clift, 2003). De Soto began
engaging in citizen participation interviews and advocacy campaigns, arguing that, “it was not so
much that the poor were breaking the law as that the law was breaking them.” His active citizen
engagement yielded more informed information and produced greater results. He discovered
that small-scale entrepreneurs faced more than simply administrative barriers in the formal
market, they were victims of legal discrimination and most of them lacked proprietary rights. De
Soto’s book The Other Path used weak institutions as a point of departure for understanding the
primary barrier to entrepreneurial growth. He argued that capacity building in institutions should
be aimed at the enforcement of contract law, strengthened financial markets, and a judicial
system that would integrate and enforce property rights. De Soto contended that simplified
bureaucratic procedures and the extension of legal property rights for conversion to assets would
encourage informal enterprises to register and convert their assets into real capital unleashing
their true productive potential. In 1989, he estimated informal land and untitled housing in Peru
to be valued at $80 billion. De Soto argued that without land titles there would be no way to
build a system of securitization that gave the informal sector access to credit, water, telephones,
and/or electricity.
De Soto’s findings received the support of President Alan García and his successor,
Alberto Fujimori. The ILD created a plan for Peru’s poor that would reform the formal property
system and incorporate businesses into the formal market more efficiently. In 1989, the Peruvian
![Page 36: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/36.jpg)
30
Congress approved Peru’s Administrative Simplification Law. The law resulted in the
simplification, reduction, and elimination of lengthy governmental bureaucratic procedures. Prior
to the law, Lima residents dealt with as many as 14 government agencies to obtain a title. After
the law was enacted they only needed to go to one. The cost of registering a business was
dropped to $174. In 1988, The Popular Mortgage Law was also enacted under the auspice of the
ILD’s research and advocacy. The law was designed to provide access to formal credit for
informal landowners. Prior to the law, informal landowners had access to an estimated 0.4
percent of the credit available from banks. The law enabled Peruvians to obtain titles to their
homes, whereby they were able to use their homes as collateral for a bank loan at market interest
rates. From 1990 to 1995, 300,000 titles were registered in urban Lima and the land value
doubled by 1998, as a result of the ILD’s domestic efforts (Clift, 2003). More than half a million
legal jobs were created and the government received an additional $300 million in tax revenue
(McKechnie, 2006).
In 2010, Peru was considered the third most improved economy in the Ease of Doing
Business report, which ranks countries based on the number and impact of reforms implemented.
Peru implemented reforms that positively affected the ease of registering property, starting a
business, taxes, and trading across borders. In 2012, Peru’s formal property registration
procedures were the shortest in the Latin America (Figure 6). In 2012, Peru was rated the second
friendliest country in the region for doing business, after Chile (Figure 7). Peru has the shortest
number of start-up procedures to register a business and has utilized the internet to create a one-
stop shop (Figure 8). The cost of business start-up procedures as a percentage of GNI per capita
in 2012 was below the regional average and well below Bolivia’s average, where costs soared to
![Page 37: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/37.jpg)
31
over 70 percent of GNI per capita. In 2010, only 18 percent of SML enterprises cited tax
preparation and administration as a major constraint, which fell below regional and world
averages of 35 percent, according to the World Bank’s Enterprise Survey. Peru had the third
shortest time in Latin America required for tax preparation in 2012, behind Chile by a mere two
hours. Labor tax and contributions as a percentage of commercial profit in 2012 were also low
in comparison to the region as a whole (Figure 9).
Figure 6: Time Required to Register Property (days) 2012
Source: World Bank World Development Indicators database.
0
10
20
30
40
50
60
70
80
90
100
![Page 38: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/38.jpg)
32
Figure 7: Ease of Doing Business Index (1=most business-friendly regulations)
Source: World Bank World Development Indicators database.
Figure 8: Start-up Procedures to Register a Business (Number) 2012
Source: World Bank World Development Indicators database.
0
20
40
60
80
100
120
140
160
180
200
0
2
4
6
8
10
12
14
16
18
![Page 39: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/39.jpg)
33
Figure 9: Time to Prepare and Pay Taxes (Hours) / Total Tax Rate (% of Commercial Profits)
2012
Source: World Bank World Development Indicators database.
Only 15 percent of SMLs identified customs and trade regulations as a major constraint
in 2012, which was below the regional and world averages of 20 percent and 18 percent,
respectively. The Superintendency of Tax Administration (Superintendencia Nacional de
Administración Tributaria or SUNAT) has continued to engage in campaigns to reform tax
structures making the processes easier and more welcoming. Consistent outreach and market
education efforts among the taxpayers to inform them of their rights, obligations, and the benefits
of taxation has been successful in facilitating compliance (IADB, 2005). If Perry and Maloney
(2007) are correct in postulating that unbundling multidimensional social taxes through
transparent linkages, access, and quality to those programs, than Peru has went beyond legal and
regulatory reform to also the development of an institution that readily engages the taxpayer
0
500
1000
1500
2000
2500
3000
Time to prepare and pay taxes(hours) 2012
Total tax rate (% of commercialprofits) 2012
![Page 40: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/40.jpg)
34
within the last thirty years. A large portion of Peru’s economic achievements over the past thirty
years can be connected back to de Soto and the influence of his legalist perspective on national
policy.
![Page 41: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/41.jpg)
35
The Multidimensionality of Economic Informality in Peru: Root Causes
Although the legislative or procedural reforms derived from de Soto’s work have made
Peru’s formal sector more inclusive and its business regulatory environment more hospitable for
formalization, such reforms are limited in their ability to address Peru’s existing economic
problems, because multidimensionality of informality exceeds the scope of law and procedure
(Tokman, 2007). The heterogeneity of relationships both within and surrounding the regulatory
system indicates the need for a diachronic analysis to ascertain its persistence. Tokman offers
conceptual tools that are helpful in organizing a diachronic analysis, which include structural
features related to the existence of surplus labor, production and work organization, market
structures, and traditional networks.
The struggle between the state and the informal sector in Peru dates back to 1557 when
the state took its first action against street vending. The state repeated the same action against
street vending 20 times to no avail before the revolution in 1821 (De Soto, 1989). Lima’s formal
society in the first century of the Republic thought the informal sector to be non-threatening to
formal trade and generally regarded it as part of the city’s culture, which created a basis for the
informal networks that persist throughout the city today (Marcelli and Madjd-Sadjadi, 2010; de
Soto 1989). Formal society intentionally created obstacles for the poor and the commoner in
Peru. Former Central Bank President, Richard Webb (2010) explains, "The archaic legal system
imposed cumbersome, exaggerated formal requirements on every aspect of life. The
requirements survived because they could be evaded by the elite. The population, who could not
afford compliance and were unaware of the formal rules, ended up as "informals." The effect was
to marginalize and stifle any activity not directly connected to the elites." To this end, Perry and
![Page 42: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/42.jpg)
36
Maloney (2007) postulate that when the populace perceives the state and institutions to be run
for a few, it reinforces their noncompliance with taxes and regulations and creates a culture of
informality. If a segment of the population believe others are not complying, they are less likely
to respond to enforcement measures. This mentality and culture weaves itself throughout Peru’s
informal sector struggle with the state.
Throughout the early 20th century various policies fluctuated between regulation and
accommodation of the informal sector. During this time period, external factors such as political
and economic structures as well as a civil war further exacerbated formal sector growth. In
1959, the government recognized the informal sector as powerful source of tax revenue. The
government realized they needed the informal sector more than the informal sector needed the
government. The government increased informal political power and granted them access to key
public spaces in an attempt to benefit from a growing ad thriving sector (Marcelli and Madjd-
Sadjadi, 2010; de Soto 1989). Shortly thereafter, in the sixties and seventies, Peru’s economic
and political structures underwent various pressures for reform. Among the changes,
modernization and the Alliance for Progress resulted in uneven growth patterns leading many
into the informal sector (Marcelli and Madjd-Sadjadi, 2010). The government unsure of what to
do with the sector and comfortable with the employment safety net it was providing. The
government proceeded to engage in flip-flop treatment of the sector, for example issuing
citations and creating new policy initiatives to reduce the sector, only to back down and forgive
citations and reverse the initiatives. The inconsistencies in policy direction by the government
strengthened the informal economy’s development and persistence.
![Page 43: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/43.jpg)
37
In the seventies and eighties, the informal sector continued to surge as a result of a civil
war taking place in the rural provinces. The civil war resulted in mass migration to urban
centers, where migrants flocked to traditional informal sector networks for work. Many migrants
joined the economic communities of extended family members. The familial networks created
productive communities that were stronger than what the formal system was providing for
migrants. The government found itself consistently granting concessions to meet informal sector
demands. The government even permitted organized unions of informal workers, such as The
Federation of Street Vendors in the Central Market and Adjacent Streets (FEVACEL), and
allowed the sector extralegal rights. From 1975 to 1980 during the rule of the Revolutionary
Government of the Armed Forces (RGAF), the informal sector was actively engaging with
political representation. Spaces that vendors occupied were labeled ´free zones´ and there was
the creation of a multi-sectoral commission that became a space for vendors and municipal
authorities to discuss informal ownership and business activity.
On the cusp of Peru’s return to democratic rule, the Municipal Authority of Lima decided
that informal markets had become too large for the state’s welfare and cracked down on the
sector through the implementation of Operación Sombrilla in 1978. Operación Sombrilla
directed public officials and police to remove vendors from their posts, guard various spaces, and
prohibit street vending. The vendors persisted, pressuring public officials to back off and allow
them to return. The vendors had won the battle again and the government was at a loss. The see-
saw between the government and the informal sector made the informal workers perceive that
established institutions were inconsistent (Marcelli and Madjd-Sadjadi, 2010).
![Page 44: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/44.jpg)
38
In this chapter we saw how the concept of economic informality is heterogeneous, which
illustrates the diversity of approaches policy can undertake to promote formalization in informal
industries that have industrial, sectoral, gender, and employment differences. This chapter
demonstrated how prior to the eighties, the government did very little to make the formal sector
accessible to the majority of the population. Legislative and procedural reforms have improved
formality, yet there are many other factors that influence Peru’s economic informality (Tokman,
2007; Chen, 2012). Through the identification of four theoretical perspectives, this chapter more
clearly illuminated how the reform processes and formalization efforts led by de Soto relate to
one aspect of a multidimensional phenomenon. The diachronic analysis demonstrates how other
influences have worked together to establish a sophisticated extralegal and informal network that
threatens MSME competitiveness. The following chapter will use two case studies, The Gamarra
Market and Villa el Salvador- Villa Maria del Triunfo, to more clearly paint a portrait of a hybrid
system weighted by economic informality.
![Page 45: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/45.jpg)
39
Chapter III: Micro, Small, and Medium Enterprise, Clusters, and Opportunity
The last chapter provided an overview for the conceptualization of heterogeneous actors
in the informal economy and explained the sector’s persistence in urban areas, namely, Lima.
This chapter will show the importance of formal micro, small, and medium enterprises (MSMEs)
to the Peruvian economy and how the informal economy hampers growth and innovation for
clusters using, The Gamarra Market and the Villa el Salvador Market and its co-cluster Villa
Maria del Triunfo, as examples. Informal and Formal Sector Competition: Micro, Small and
Medium Enterprises uses a sectoral analysis to represent the competition and pressures felt by
various formal industries in the face of informality. In this section, this thesis will also outline
the overall advantages and disadvantages found to be associated with formalization, showing
how the advantages outweigh the disadvantages in the Peruvian case. The case studies will use
Michael Porter’s cluster argument as a methodological framework for assessment, which more
clearly demonstrates how greater formalization will benefit the clusters. The two cases were also
selected for their periodization. The Gamarra Market dates back to the nineteenth century, yet
grew in a noticeable and documented way in the sixties. Villa el Salvador began a government
project in the eighties and lost direction in the nineties during economic opening. Villa Maria
del Triunfo, Villa el Salvador’s co-cluster, is the result of more recent migration that has been
established through existing migrant networks. As shown in the previous chapter, rural to urban
migration networks are one of the primary reasons for the informal economy’s persistence in
Peru. These two cases demonstrate a more tangible example of the dynamic ways in which the
informal and formal sector interacts in Lima, building from the diachronic context provided in
Chapter II. The analysis of the clusters as case studies serves to illustrate the ways in which the
![Page 46: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/46.jpg)
40
informal sector impedes Peru’s formal MSME competitiveness. The thesis is grounded in the
perspective that informal finance is endogenous to economic informality; therefore, it should be
assumed that the informal credit system exists within and among the networks of the informal
enterprises discussed in the two cases. Informal credit will be discussed at length in Chapter IV.
![Page 47: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/47.jpg)
41
Informal and Formal Sector Competition: Micro, small, and medium enterprise
A paramount reason to promote full economic citizenship through formal financial
inclusion is to protect Peru’s formal micro, small, and medium enterprises (MSMEs). MSMEs
are the growth engine of the Peruvian economy. In 2007, an estimated 6 million formal micro-
enterprises provided work for over 10 million Peruvians or 72 percent of the formal
economically active population (Cáceres-Barrantes, 2012). By 2011, microenterprises
accounted for 75 percent of the formal labor force. What is striking about these figures is that
they exclude the informal sector. It is estimated that for every 1.1 million MSMEs only 110,000
have gone formal, and many have not finished the process of formalization (Cáceres-Barrantes,
2012).
Chapter II demonstrated that the formal market is open and receptive for formalization.
The persistence of the informal economy was shown to be a symptom of multivariate causes
using a four perspective lens, which can be attributed to the development of a strong migrant
network in Lima. A study by USAID, Removing Barriers to Formalization: The Case for
Reform and Emerging Best Practice, found advantages of formality to be: Sustainable higher
quality, better wage employment; a reinforcement of the social contract between citizens and
their state; strengthened reliability of agreements between firms through improved investor
confidence; improved access to: business services, formal markets, and productive resources
such as land and capital; less cash in the society through formal financial market intermediation;
and increased welfare and market opportunities for marginalized groups. The study finds
disadvantages to be: Expensive and time consuming regulatory and legal barriers, however as
demonstrated by the previous chapter this no longer applies to the Peruvian case; hiring and
![Page 48: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/48.jpg)
42
firing works; cost to create collateral and the procedures associated with legality; a poor tax
administration, this finding also does not apply to Peru as SUNAT has continually been
improving and supporting the formal sector; costs and procedures required to register a business,
again this disadvantage does not apply in the Peruvian case. Disadvantages that require further
research and will depend upon municipality and department are: corruption; lack of key business
services; and criminality (USAID, 2005). Bertell Ollman identifies the following factors to be
representative of the advantages and disadvantages of formality for an economy as a whole
(Figure 10):
![Page 49: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/49.jpg)
43
Figure 10: Informality: Advantages and Disadvantages
Source: Adapted from Ollman, Bertell. "Market Economy: Advantages and Disadvantages
Market Economy: Advantages and Disadvantages” Talk at Nanjing Normal University, Nanjing,
China. Oct., 1999.
The analysis suggests that the advantages of formalization for various informal sectors
will outweigh the disadvantages. Informality also produces numerous dangers to public health,
especially in the informal agriculture and produce markets. As discussed in the Context, a large
informal grocery retail sector will meet strong multinational competition as products such as
Advantages to Informality
•Competition between different firms leads to increased efficiency.
•Most people work harder fearing job loss.
•Firms are able to cut bottom line costs, as such produce more and sell cheaper.
•Innovation, as firms look for new products to sell and cheaper ways to do their work, (this can also be a result of formality).
•Foreign investment is attracted through new opportunities increased profits.
•Paying lower wages to informal workers.
•No legal and or public restrictions on the way in which business is conducted.
Disadvantages to Informality
•MSMEs lose competitiveness to multinational competition.
•Can result in distorted investment priorities because there is no legal recourse for laborers.
•Exploitation of workers; hard work and low pay.
•Overproduction of goods, since workers as a class are never paid enough to buy back.
•Unused industrial capacity.
•Growing unemployment.
•Growing social and economic inequality.
•Disproportional political influence by wealthy.
•Increase in corruption in all sectors of society.
•Increase in all kinds of economic crimes.
•Reduced social benefits and welfare.
•Worsening ecological degradation.
![Page 50: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/50.jpg)
44
lettuce and uncooked food lacks formal market health and sanitation standards (Figure 11:
Public Health). As Lima’s consumer preferences become more sophisticated, hybrid agricultural
clusters with large informal sectors will lose competitiveness as the public becomes more
concerned with health and sanitation standards.
Figure 11: Public Health
Source: Based on in-country research.
In 2010, formal Peruvian small, medium, and large enterprises (SMLs) were competing
against unregistered and informal firms and almost 30 percent of SMLs identified practices of
the competitors in the informal sector as their biggest constraint, surpassing all other possible
indicators, according to World Bank Enterprise Surveys (WBES, 2010). The biggest formal and
informal sector competition was for medium enterprises, with over 80 percent of medium
• Informal Produce Markets: excessive trash and traffic, lack of sanitation standards, contamination, crime, and prostitution
A Threat to Public Health
![Page 51: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/51.jpg)
45
enterprises identifying informal competition a barrier. Over 70 percent of SMLs in Lima and
over 90 percent of SMLs in Arequipa struggled to compete with the informal sector. Within the
various sectors the numbers were high as well, with over 70 percent competition between the
formal and informal sector in the food and retail industries, just shy of 80 percent competition in
the textile and garment industry, and over 85 percent competition in manufacturing (WBES,
2010). As shown in Figure 12: Informal Economy Competition for Formal Firms by Sector,
formal firm competition against the informal sector spans a number of industries. A process of
formal financial inclusion would help to integrate these enterprises into a formal system,
eventually making them tax-paying and registered entities with the Peruvian government. These
processes will lessen the pressure currently felt by the majority of Peru’s most important
enterprise sector, MSMEs.
![Page 52: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/52.jpg)
46
Figure 12: Informal Economy Competition for Formal Firms by Sector
Source: Percent of Formal Firms by Sector that Compete against the Informal Sector Data from
World Bank Enterprise Surveys.
Peru’s microeconomic activity and network relationships, formal and informal, have
generated a multitude of entrepreneurial and notable clusters over time. Porter (2000) defines
clusters as geographic concentrations of interconnected companies, suppliers, service providers,
interrelated industries and associations in a particular field that compete and cooperate. Peru’s
The Peruvian Government
•Formal commerical and microfinancial instiutitions are the immeadiate Beneficiary of the 65% of individuals and enterprises within the informal economy.
•Formal MSMEs will benefit gradually as informality decreases.
•The long-term outcomes support the Peruvian Government and it's provision of legal and social services to citizens.
Formal Financial Inclusion
% of formal firms by sector that compete
against informal sector
•Textiles and Garments: 79%
•Food: 73%
•Chemicals, Plastics, and Rubber: 71%
•Basic Metals,Fabricated Metals, Machinary & Equip: 75%
•Other manufacturing: 85%
•Retail: 72%
•Other Services: 57%
![Page 53: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/53.jpg)
47
mixed formal and informal economy creates an alternative dimension in its clusters. Porter
(2000) argues that clusters have the ability to take on more textured roles in complex,
knowledge-driven, dynamic economies, as is exhibited in Peru’s clusters. The formal and
informal economy of Peru has generated various types of entrepreneurial clusters, apart from
textile in Gamarra and carpentry in Villa el Salvador, including: agricultural and grocery retail
clusters in Lima and Arequipa; Montesco cheese in Cajamarca; grape and wine in Ica; metal
mechanics in Atem; and software in Wilson, Lima (Gerz and Boucher 2006). Porter’s theory of
clusters illustrates the many facets and linkages that occur among actors, in the case of Peru, a
separation of employment and firm status as formal and informal helps to describe the parallel,
yet complementary systems in place. In Peruvian clusters there are three principal forms of
employment and enterprise status. There are (1) formal enterprises and formal employees (2)
informal enterprises and informal employees and (3) informal employees working for the formal
economy.
Firms and individuals within clusters are found to share common constraints, problems,
and opportunities; however, the informal dimension in Peruvian clusters creates added
challenges and constraints for the formal sector. Informality becomes a deficiency to formal
stakeholders in a cluster attempting to modernize and grow because they are unable to cooperate
efficiently as a body of enterprises. Informality can limit trust, international investment, and
acceptance by higher-end consumers, namely an emerging middle class whose preferences are
expected to become more sophisticated. The mechanisms in which informal and formal
enterprises organize within a cluster and cultural normal are fundamental to the performance,
development, and functioning of clusters, according to Michael Porter. When organizational
![Page 54: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/54.jpg)
48
processes in clusters take place in dual systems they are competitive rather than complementary
and restrict the final phase of international, competitive growth. As will be shown in the case
studies, Peru has managed to integrate vertically. Vertical integration is common when there is
large informal concentration and formal firms have access to cheaper input supplies, which is
beneficial for their bottom line. However, this type of integration will restrict Peru to passive
collective efficiency gains. The passive collective efficiency, found in the vertical integration,
phase is defined as the transformation, transacting, and strategic decision-making in
technological and pecuniary decisions. Passive collective efficiency gains for formal and
informal firms include: lower costs on the value chain, information spillovers, and higher
domestic sales volumes. The ideal form of collective efficiency for a cluster is active collective
efficiency, which will not take place unless a cluster is formalized. Active collective efficiency
gains are the most beneficial for all sectors, which include formal enterprise, labor, and the
government. An active collective efficiency gain in a cluster is the transformation, transacting,
and strategic decision-making in learning and innovation. This type of gain moves beyond
vertical integration to horizontal cooperation. This stage allows for cooperative firms and labor
to produce for the domestic and international market in terms of quality, quantity, and in new and
creative ways (Visser, 1999). This type of efficiency gain requires trust, cooperation, and
associations that are legally and socially protected in the formal sector of the economy.
The next two sections explore two entrepreneurial clusters of mixed formality and
informality, The Gamarra Market and The Industrial Park. Both of these clusters are situated in
popular urban zones of Lima, La Victoria and Villa el Salvador - Villa Maria del Triunfo.
Lima’s urban zones differ by average socioeconomic level, economic activity, business and
![Page 55: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/55.jpg)
49
regulatory environment, length of settlement, infrastructure, and credit availability (Dunn, 1999).
It has been argued by Dunn (1999) and other theorists that urban zone locations can influence
market opportunities. Popular zones are characterized by Dunn (1999) as settlements formed by
migrants, with well-established infrastructure, and located on the inner periphery of Lima. The
commercial activity in The Gamarra Market and The Industrial Park, have flagged them as
important clusters for Lima’s economy. The Gamarra Market is Lima’s textile capital that has
the potential to become competitive against the United States’ garment cluster in Los Angeles, if
greater formalization is achieved. The Industrial Park is an urbanizing carpentry cluster that
also can become more competitive as they continue to service the construction boom, and could
promote an abundance of opportunity for informal sector conversion in their co-cluster, Villa
Maria del Triunfo. Villa Maria del Triunfo has over one thousand informal enterprises adjacent
to the growing carpentry cluster (OBG, 2012).
![Page 56: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/56.jpg)
50
CASE ONE: GAMARRA MARKET
The Gamarra Market: Informal roots describe the industrial beginnings of The Gamarra
Market as a successful informal market that grew into a hybrid space over time. The next
section, Reforms: Positive results for formality, sheds light on the positive results that regulatory
and legal reforms have had on formal conversion from the early nineties to the present. Despite
the reforms, Workforce: Informal and formal actors in the Gamarra Market will show the
current structure of formal and informal actors in the market. The following section will engage
a discussion of the importance The Gamarra Market has for the socioeconomic classes of Peru.
The last section, Vertical vs. Horizontal Linkages, will illustrate the ways in which informality
has reaped positive vertical benefits, but with the direction of the economy its restrictions on
horizontal agglomeration threaten the cluster’s competitiveness potential.
Figure 13: The Gamarra Market, Lima 2013
![Page 57: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/57.jpg)
51
The Gamarra Market: Informal roots
The Gamarra Market, located in Lima’s La Victoria district, is an industrial hub known
for its textile industry. Gamarra’s productive activities date back to the nineteenth century have
gone beyond the textile market to include automotive repair, metalworking, woodworking, and
the production of various other final products (Visser, 1999) 9
. The textile industry started to
grow in the 1960s through a small group of informal vendors and primary and intermediary
producers. As mentioned briefly in the overview of Peru’s informality, in the early 1960’s, the
United States pressured the country to pursue a more capitalist mode of development. President
John F. Kennedy launched the United States led Alliance for Progress as a social and economic
development for Latin American countries. The Alliance for Progress tackled issues of
communism and imposed a more modern model of regional economic development. Although
Peru experienced growth under the model, the development projects did not evenly benefit its
citizens. Growth was regionally concentrated on the coast, and the rural regions of the
countryside and the jungle became evermore separated from the country’s progress. Pressures
from the changing economic model on the coast within capital cities and an increasing migration
of those excluded from economic progress resulted in high concentrations of formal
unemployment, which exacerbated the informal sector. The provincial regions in the countryside
and jungle were also subject to the civil war in the seventies and eighties, which furthered
propelled urban migration. Migrants and the unemployed flocked to the textile industry because
it required rudimentary labor skills, equipment, production methods, and product information to
9 At the end of the nineteenth century, Arab and Italian immigrants were the first to set up textile shops in
the Gamarra market. Informal workers flocked to the market and created the sixties boom period
(Olivera, 2013).
![Page 58: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/58.jpg)
52
compete. Visser (1999) found that the informal textile industry’s low barriers to entry provided a
haven for migrants. As urban zones grew and transformed, The Gamarra Market managed to
establish a formal textile industry while absorbing a large portion of the informal migrant sector.
Over time The Gamarra Market grew into a garment district with the most notable concentration
of MSMEs in Lima.
Figure 14: The Gamarra Market, Lima 2013
![Page 59: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/59.jpg)
53
Reforms: Positive results for formality
The Gamarra Market has become an engine for Lima’s textile industry and a major player
in the Peruvian economy as a whole (OBG, 2012). Formal enterprises in Gamarra have more
than doubled since Fujimori began implementing de Soto’s suggested reforms in the early 1990s.
Annual revenue from formal firms has also increased over the last two decades by 25 percent.
Below, Table 7 shows the positive impact legal and business regulatory reforms have had on
Gamarra since 1993. The table shows percentage of growth, size, current formal employment
levels per sector, and percentage of females employed per sector. An estimated 81 percent of
employees are between the age of 18 to 40 years old; 60 percent between ages 18 to 29; and 21
percent between the ages of 30 to 39.
![Page 60: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/60.jpg)
54
TABLE 7: Gamarra Formal Sector, 1993 and 2012
Formal
Enterprises
1993 2012 Growth rate
(%)
Growth
(size)
Employment
2012
Female
2012
Small Clothing
Firms
1,950 15,000
146.00%
8,900 31,706
(62%)
25,365
(81%)
Medium Size
Firms
50
Traders of Cloth
Fabrics and
Accessories
4,100
Restaurants 300 4,000 1,233.00% 3,700 3,348
(6.5%)
988
(29.5%)
Equipment and
Components
150 5,000 3,233.00% 4850 13,982
(27%)
6,292
(45%)
Total Formal
Enterprises
6,800 24,000 3,429.00% 17200 51,512 30,907
(60%)
Annual Turn Over $800
million
dollars
$1 billion
dollars
25% $200 million
dollars
Source: Adapted from: SUNAT; Ramos, 2012; INEI, 2012; OBG, 2012.
![Page 61: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/61.jpg)
55
Workforce: Informal and formal actors in The Gamarra Market
The Gamarra Market covers 54 blocks and has approximately 130-200 galleries (OBG,
2012; Ramos, 2012). The Gamarra Market has been estimated to provide work for over 75,000
people when taking into account the informal sector. Peruvian Sociologist, Martin Tanaka
(1999) classifies the actors involved in the commerce, trade, and the financial system of Gamarra
into the following five groups: economically powerful, medium and small garment
manufacturers, medium and small traders, and informal traders and input dealers.
The formal economic powerhouse of Gamarra resides in the Johannesburg complex and
is made up of the 13 largest companies. The group has been referred to as the Johannesburg but
the association operates under a variety of names, which include: Coordination Council of
Business Executives, Gamarra Entrepreneurs, Coordinating Committee of Gamarra
Entrepreneurs, and the Main Business Association (Peru This Week, 2012; Oxford Business
Group, 2012; BizUSAPeru, 2013; La Andina, 2013). I will refer to the group as the
Johannesburg group for consistency. The Johannesburg group includes professions that range
from entrepreneurs, warehouse owners, input providers, and fabric dealers. This group consists
of property owners, gallery developers, and commercial warehouses. The Johannesburg group is
the main source of economic capital for the Gamarra Market. These actors consist of the large
industrial garment manufacturers, major wholesalers of inputs (fabrics and trimmings), and
machinery for the cloth providers. The one thing that the Johannesburg members have in
common is that they are formal stakeholders. The Johannesburg group is connected nationally
and internationally (Tanaka, 1999). The Johannesburg group has continued to seek new ways to
formalize and improve quality, convenience, and the experience in Gamarra for the consumer.
![Page 62: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/62.jpg)
56
The group has engaged municipal authorities as well as formal vendors in an attempt to push for
greater formalization to transform Gamarra into a modern retail cluster, which would not only be
competitive domestically, but has the potential to become internationally against the U.S. retail
cluster of Los Angeles. At present, formal Gamarra exports 40 percent of products
internationally and a remaining 60 percent is produced for the domestic market, either for final
consumption or resale (OBG, 2012). The Johannesburg group is motivated not only by
increasing exports but also by the possibility of converting The Gamarra Market into a modern
retail investment hub. The group recognizes the importance real estate capital, technology, and
production could have in the delivery of formal gains to the municipality and federal
government, firms, and active labor force.
The majority of The Gamarra Market complex consists of a mix of formal and informal
medium and small garment manufacturers, traders, and input providers. They are traditionally
run as family business and have built their establishments based on networks and migration. The
majority of them own and/or are tenants of small retail outlets. Formality is dependent upon
size, preference, location, and historical ties with either the formal or informal sector. The
informal manufacturers and traders in this group create the most competition for formal
enterprises. This is the target group for formalization because an enterprise’s actions will have
an effect on the status of informal employees of small businesses. Employees are traditionally
women who sell clothing in the commercial shops and their status as formal or informal depends
on the owner. Within this complex there are also a myriad of associations, unions, and
organizations for enterprises and workers in the formal and informal sector. The multitude of
groupings in competitive sectors has made the organization of an initiative to unify these actors a
![Page 63: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/63.jpg)
57
challenge. The Johannesburg group, perceived as elitist, is often a turn off to the informal sector.
Despite their power, The Johannesburg group has been unsuccessful in creating an umbrella
campaign among the groups for formalization.
Figure 15: The Gamarra Market, Lima 2013
![Page 64: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/64.jpg)
58
What Does Gamarra Mean to Peru’s Socioeconomic Population
The Gamarra Market receives 100,000 visitors daily (OGB, 2012; Tanaka,
1999). Almost half of Gamarra’s visitors are socioeconomic level C or the middle class,
followed by SEL D at 35%, SEL B at 12%, and SEL E at 5%. Socioeconomic level is
commonly used to describe the delineation of consumption patterns, lifestyle, and wealth among
a population (Dunn, 1999).
Figure 16. Peru’s Socio Economic Levels and Dimensions
Source: Adapted from Michael Chu, 2013 and Richard Webb, 2010.
SEL A/B
9.1%
Average Income: $3,600.00 USD per month
SEL C
25.4%
Average Income: $415.00 USD per month
SEL D
30%
Average Income: $270.00 USD per month
SEL E
35.5%
Average Income: $180.00 USD per month
Population: 30 million
Urban: 23.3 million
Rural: 6.7 million
Source: World Bank, 2012
![Page 65: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/65.jpg)
59
Description of Figure 16: Peru’s Socio Economic Levels and Dimensions:
A/B •Peru’s wealthiest SEL comprises 9.1 percent of the population and is classified as A and B consumers. They have
access to all types of banking and financial services. They are characterized as multimillionaires who inherited wealth, or come from the elite class in Latin America. They are generally of European descent and have maintained control of major institutions and political power from independence to economic integration in the early 1920s. They live in luxury housing in exclusive neighborhoods. Financial services were long thought to be for SELs A and B or the elite and privileged classes. Exclusivity, in relation to institutions, resulted in the growth and competitiveness of the informal financial and commercial sector. Perceptions of these institutions continue to be a barrier. For example, in 2012, 75 percent of commercial bank clients were from the upper income groups (A and B), and consider themselves to be sophisticated and wealthy (Chu, 2013; Arellano, 2013).
C
•The majority of Peruvians are spread across income groups C-D. C+ Consumers earn higher salaries at their job and tend to be high-level executives or professionals at large firms. SEL C+ can afford A and B habits for mass consumption but are affected if they quit or leave their job. They are members of first-class clubs and organizations. Their children attend private schools and they own or rent homes and live comfortably. C Consumers earn middle class wages and are generally professionals, executives, or employees of middle-sized businesses. They have the ability to easily meet primary needs and generally enjoy a well-being of life. They live in detached houses or modern buildings in middle-housing areas. Their social position depends on economic situation. They are able to enjoy some convenience, but often at the cost of economic sacrifice. C- Customers have the ability to meet primary needs and are typically employees of small businesses or informal companies. They are considered to be lower to middle income, have large families, and live in apartment buildings or small detached houses in heavily populated areas. This level has a mix of formal and informal employment and enterprise.
D
•Socio Economic Level D is barely able to meet their primary needs and have almost no convenience goods. They are low-level workers at small companies and generally live in informal housing with large family sizes in heavily populated areas. This level has a mix of formal and informal employment and enterprise, but is traditionally informal.
E
•Socio Economic Level E can barely meet their primary needs and are unable to afford any product or service. They don’t have any steady work and generally live with large families in makeshift housing (of straw matting, cardboard, corrugated iron and boards) in marginal zones. This level has a mix of formal and informal employment and enterprise, but is traditionally informal (Chu 2013; Marsili 2013).
![Page 66: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/66.jpg)
60
These statistics demonstrate how important Gamarra is to Peru’s middle class, which is
only continuing to expand as Peruvian wealth increases. At present Gamarra is the most popular
destination to purchase clothing for the majority of the population in Lima. Over 41 percent of
Lima’s consumers prefer Gamarra for their clothing needs, whereas, formal shopping centers,
such as Mega Plaza, Jockey Plaza, Plaza San Miguel, and Plaza Norte, are currently less popular.
With a pending investment of $1.3 billion dollars, Peru is expected to double its current count of
45 shopping malls in the next two years, according to Gonzalo Ansola, President of Peru’s
National Shopping Center Association. The pressure to remain competitive against the
emergence of new shopping centers has left the Johannesburg group desperate to discover new
ways to formalize and improve product quality, safety, experience, and convenience for the
consumer. The group has engaged municipal authorities as well as formal vendors in an attempt
to push for greater formalization. In many cases the group has been successful, namely in
security improvements and the introduction of finer restaurants and cuisine; however, to
maintain their position as a preferred retail destination with more sophisticated consumer’s
preferences and investments pouring into the retail sector, they will need to do more in the way
of formalization.
![Page 67: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/67.jpg)
61
Vertical vs. Horizontal Linkages
Gamarra’s intensive growth over the last 20 years has resulted in complex organization
by the informal sector which directly competes and/or contributes to the cluster’s formal
structures. Informal and formal networks are found to work in tandem, vertically and
competitively, horizontally. Ideally there should be cooperation in a cluster, vertically and
horizontally.
Gamarra’s vertical linkages have been successful. Gamarra has been found to cooperate
in terms of as technical and commercial dialogue between users and producers of input and
intermediary products. Chen (2012) argues that primary goods and raw materials are often
traded to formal firms by informal intermediaries, through a sub-sector network of commercial
relations or a value chain of subcontracted relations. These subcontracted relationships between
the informal and formal sector has resulted in a number of passive collective efficiency gains.
The most notable gains for Gamarra have included: cost reductions on the value chain;
information spillovers; higher average monthly pay per worker; a rise in real estate prices10
; and
higher sales volume.
As result of fragmentation between the formal and informal sector, evidence in the early
nineties found horizontal organization and cooperation was rare in Gamarra. The informal
network pays minimal taxes, lacks overhead, and traditionally brings in delinquency and
overcrowding. Informal enterprises’ close exposure to formal facilities has also resulted in
intellectual property issues and counterfeit clothing sales. Once a luxury brand arrives in
Gamarra it is reproduced and sold at half the price (Ramos, 2012). There are even informal
10
In 1994 a square meter of the ground floor of a new shopping center sold for $5,000, unlike any other
real estate prices in Lima at the time.
![Page 68: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/68.jpg)
62
designers who specialize in the imitation of popular designs. The competitive relationship
between the informal and formal sectors creates distrust amongst producers in the two sectors
and the result is a lack of agglomeration. Studies show that cooperation often takes place in
networks of entrepreneurs pursing the same concrete business goals of enhancing productive
volumes and turnover and improving quality and product design (Visser, 1990; Cáceres-
Barrantes, 2012). Formalization of Gamarra’s informal sector would encourage this type of
collaboration, promoting modernization and innovation, the result of active collective efficiency.
As demonstrated in this case study, The Gamarra Market is bustling with employment
and formal market opportunity, yet is also held back by historical informal networks that formed
the basis of the market’s creation in the nineteenth century. Reforms inspired by Hernando de
Soto and the work of the Johannesburg group have resulted in vast improvements in the market’s
formality and growth. However, the informal sector threatens the sustainability and future of the
market. The importance of Gamarra for the majority of Lima’s socioeconomic population, and
shifts in consumer preferences, will require strategies that promote horizontal cooperation
through targeted market initiatives in formal financial inclusion, followed by formalization.
![Page 69: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/69.jpg)
63
Case Two: Villa el Salvador and Villa Maria del Triunfo
This case study highlights the growing importance of Villa el Salvador as a primary
provider for a construction boom in Peru that has been the result of industrial growth and a
growing middle class’ demand for new housing. The construction boom will only be sustained if
middle class growth, income, and opportunity are sustained. Various theorists and professionals
speculate a housing bubble is approaching Peru, if it cannot maintain middle class growth and
newfound socioeconomic mobility. This thesis argues from the position that if the fundamental
challenges of formal financial inclusion and economic formality are addressed, the country has a
better chance at sustaining long-term growth. Formal financial inclusion and economic formality
in Villa el Salvador’s co-cluster, Villa Maria del Triunfo, has the potential to not only encourage
growth but also combat the poverty in the district. Initiatives by MiBanco began in 2008, which
have yielded positive results in the community; however, there is still work to be done in and
around the cluster and co-cluster.
The Villa el Salvador cluster or “The Industrial Park” began in the 1980s as an ambitious
industrial park project. By the 1990s in the face of the Washington Consensus, market
liberalization, and deregulation the project lacked clear direction and government support
(Cáceres-Barrantes, 2012). Despite the loss of government direction, “The Industrial Park”
continued to grow through the arrival of entrepreneurial migrants, who formed the foundation of
an organic carpentry cluster. Over 75 percent of the cluster’s enterprises belonged to the
commercial sector, spanning carpentry, metallurgy, and manufacturing. In 2010, there were
almost two thousand formal businesses, 43 percent dedicated to the manufacture and sale of
furniture and 57 percent to marketing furniture (Vilchez, 2008; Cáceres-Barrantes, 2012). The
![Page 70: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/70.jpg)
64
Industrial Park encompasses many supply chain actors such as, input producers, product
developers, and marketers.
Peru’s per-capita increases and economic mobility are allowing for a greater share of
consumers to afford homes as well as an increase in the demand for bigger and better homes in
Lima’s growing districts. In 2013, real estate prices in Lima increased an estimated 37.4 percent
further fueling the construction boom. (Vigo, 2013). The Central Reserve Bank reported that
growth was being propelled by an increase in demand across all socioeconomic sectors;
however, the greatest sales were for socioeconomic level B, which represented just over 50
percent of total sales (Vigo, 2013). The president of Peru’s National Shopping Center
Association, Gonzalo Ansola, said, “The growth is coming from new consumers. People are
moving from sectors C to B and B to A” (Tegel, 2012). The Industrial Park has serviced the
rising construction demand and become an economic powerhouse. The cluster is an industrial
and commercial hub with the majority of sales and production for the domestic market as a result
of the construction boom. Fifty percent of production is sold directly to the domestic market and
a remaining 20 percent of production is for wholesale and/or medium or large enterprise resale
(Vilchez, 2008). Despite its growth and positive future prospects, Villa el Salvador, similar to
Gamarra, suffers from a lack of agglomeration and horizontal linkages. The cluster operates on
passive collective efficiency gains, and struggles with cooperation as a result of informality and
lack of trust between formal and informal actors.
Villa Maria del Triunfo is a co-cluster of ¨The Industrial Park. ¨ Villa Maria del Triunfo’s
agriculture, restaurants, and accommodation facilities are linked to enterprises in Villa el
Salvador. The co-cluster is largely informal, but has a popular commercial Zona de Pachacutec
![Page 71: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/71.jpg)
65
that has over 1,500 formal enterprises and over 1,000 informal enterprises. Villa Maria del
Triunfo is on the middle to lower end of the socio-economic spectrum, experiencing the reality
of poverty, while trying to grow to meet an emerging middle class consumer. The city is
smoggy, crowded with migrants, and made up of make-shift, corrugated metal and wood work
stalls. Statistics related to poverty demonstrate challenges for the district: malnourishment is as
high as 15 percent; 34 percent of the population does not have access to running water; and 34
percent of the community does not have access to electricity (INEI, 2005). Despite its shoddy
appearance and challenges with poverty, the 1996 economic census found that one-fourth of
small and medium Peruvian enterprises were located in Villa Maria del Triunfo and that number
has continued to grow. Over 50 percent of the formal and informal enterprises are micro or
small, averaging 1-4 employees. The remaining 50 percent are considered to be subsistence or
self-employed. Informal enterprises in this district are organized by migrants on the basis of
familial networks stemming from their home communities (Vilchez, 2008; INEI, 1996). Villa
Maria del Triunfo is an example of an informal sector that’s growth has been supported by
traditional network structures.
MiBanco began its work with the co-cluster Villa Maria del Triunfo in 2008. Since its
opening, the MiBanco market has attracted roughly 400 enterprises, many of which have since
formalized. The MiBanco cooperative is raising the standard for MSMEs in the area. The
MiBanco market is a clean and organized space introducing a shopping alternative to the
district. Residents and squatters now have the option to purchase produce and products in a
cleaner environment. The market is even equipped with a full service food court. The bank has
plans to build out a fourth floor offering services in technology to not only build capacity, but
![Page 72: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/72.jpg)
66
meet an unprecedented and rapidly growing consumer demand for both technological products
and services. The cooperative is equipped with access to financial officers and loan providers
increasing financial responsibility for businesses and leading many to formalize as a result of
their capital increases (Santisteban, 2013). There are still over 1,000 enterprises that operate
informally and need a targeted solution. The close links between informality and formality in the
cluster and co-cluster allows for informal sector exposure to the operation and organization
mechanisms the formal sector employs. Greater formal conversion will allow for immediate
benefits through a boost in the modernization potential of the cluster, municipal revenue for
projects to reduce poverty, and increases in employment opportunities.
This chapter showed the importance of greater formalization initiatives in The Gamarra
Market and the Villa el Salvador Market and its co-cluster Villa Maria del Triunfo. Informal and
Formal Sector Competition: Micro, Small and Medium Enterprises used a sectoral analysis to
represent the competition and pressures among formal and informal firms. The chapter then
highlighted the advantages and disadvantages associated with formalization for a firm and an
economy, positing that the advantages outweigh the disadvantages in Lima. The case studies
used Michael Porter’s cluster argument as a methodological framework to show how active
collective efficiency gains and increased formal employment opportunities will promote
competitiveness and sustain socioeconomic growth. Chapter IV will discuss formal financial
inclusion and the sophisticated role informal credit has in the informal economy.
![Page 73: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/73.jpg)
67
Chapter IV: Formal Financial Inclusion
This chapter will begin with a brief discussion of the importance of formal financial
inclusion as it relates to the majority of Peru’s socioeconomic population in, The Benefits of
Financial Inclusion for Peru’s Socioeconomic Levels. Assessing Peru’s Levels of Financial
Inclusion, provide an empirical assessment of Peru’s level of formal financial inclusion based on
indicators and metrics provided by the World Bank’s 2012 Financial Inclusion Summit. Based
upon a quantitative and qualitative analysis, The Informal Credit System in Peru, will conclude
the chapter with an alternative explanation of low formal financial inclusion that can be
explained by an informal credit system, which this thesis argues is underpinning economic
informality.
![Page 74: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/74.jpg)
68
The Benefits of Financial Inclusion for Peru’s Socioeconomic Levels
In 2005, named the year of international credit, U.N. Secretary-General Kofi Annan
argued that well-functioning financial systems were important for an economy. He, asserted
that, ¨...[they] economically and socially empower individuals, especially the poor, allowing
them to better integrate into the economies of their countries, actively contribute to their
development, and protect themselves against economic shocks¨ (United Nations, 2005). Čihák,
Demirgüç-Kunt, Feyen, and Levine (2010) demonstrate the positive relationship that exists
between formal financial inclusion and socio-economic development as both pro-growth and
pro-poverty reducing. Beyond being pro-growth and pro-poverty reducing formal financial
inclusion has a many other benefits for citizens, formal institutions, and the economy as a whole.
For citizens, financial inclusion can smooth consumption overtime; provide security for old age;
allow for access to fair interest rates; offer a variety of financial products; provide credible
regulators; and citizens are able to enjoy the benefits and tax advantages offered to those whom
are part of a formal financial system. Regulation of institutions contributes to transparency and
consumer protection. Finally, the economy as a whole can benefit from financial inclusion
through a competitive market that accelerates economic growth allowing for efficient
investments in entrepreneurial activities, which can spur innovation and yield high economic
returns (Schumpeter, 1985). The benefits provided by formal financial intermediation can well
translate into gains for the entrepreneurial clusters discussed in Chapter III.
Despite the myriad of benefits for individuals, institutions, and an economy, a study
conducted by McKinsey in 2009 found that 2.5 billion, or just over half of the world’s adults do
not use formal or semi-formal financial institutions to save or borrow. The majority of the
![Page 75: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/75.jpg)
69
“unbanked,” 2.2 billion people, live in developing parts of the world, which include Africa, Asia,
Latin America, and the Middle East (Chaia, 2009). The unbanked refers to anyone that is not
financially included in the formal system, yet may be banking informally. The term “financial
inclusiveness” is meant to account for a varying degree of banking services and various types of
financial institutions. 11
To overcome the obstacles of financial inclusion, the regulated
commercial finance industry developed microfinance to address the issue of informal credit
markets. Microfinance is an important commercial banking player in Peru because it services
the majority of its population. Microfinance targets socioeconomic levels C-D. As shown in
Chapter III, What Gamarra Means to Peru’s Socioeconomic Population, more than half of
Peru’s population lives within the socioeconomic levels that microfinance targets.
11
The United Nations considers the following institutions to represent financial services: commercial
banks; state development and agriculture banks; postal savings banks; non-postal savings banks;
microfinance institution banks; licensed non-bank financial intermediaries; financial cooperatives and
credit unions; rural banks and community banks; non-governmental organizations; insurance companies;
transfer payment companies; non-bank private retailers; and informal mutual assistance groups.
![Page 76: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/76.jpg)
70
Assessing Peru’s Levels of Financial Inclusion
Peru’s SEL C makes up its rapidly growing middle class and a class of consumers that
has the ability to participate in formal financial services, yet at present, empirical evidence
estimates that almost 80 percent are not (MarketMix, 2013). The World Bank’s G20 Financial
Inclusion summit (2012) concluded that for formal financial inclusion, a country must have:
access to financial services, usage of these financial services, and quality financial services.
Table 2 displays the five financial indicators the World Bank uses to empirically assess a
country’s level of formal financial inclusion.
TABLE 2. World Bank Financial Inclusiveness Indicators
Indicators Indicator Measurement
Formally banked adults: the percentage of
adults with an account at a formal financial
institution
Adult population
Adults with credit at formal institutions:
percentage with at least one outstanding loan
from a financial institution
Adult population
Formally banked enterprises or the percentage
of small and medium enterprises with an
account
Enterprises
Enterprises with an outstanding loan from a
regulated financial institution: Number or
percentage of SMEs with an outstanding loan
and
Enterprises
Points of Service: Number of branches per
100,000 adults.
Geographic accessibility
Source: World Bank Financial Inclusion Database Report
![Page 77: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/77.jpg)
71
This section will begin with an empirical assessment using the indicators in Table 2 to
evaluate the levels of access to and usage of formal financial services in Peru. Next, this section
will discuss the quality of Peruvian formal financial services through an explanation of the
current state of Peru’s microfinancial and commercial banking industry, and conclude with a
qualatative analysis of the informal credit sector.
To assess the percentage of adults with an account at a formal financial institution I used
the most recent depositor and borrower data from the World Bank’s Development Indicators
Database and the MarketMix12
. The World Bank’s data reported that in 2010 Peru averaged 424
depositors per 1,000 adults and 123 borrowers per 1,000 adults. When these numbers are
compared regionally, they are extremely low, only surpassing Paraguay’s averages (Figure 17).
12
The MarketMix is a business tool that aggregates microfinance data and Social Performance
measurements for the microfinance institutions that help alleviate global poverty.
![Page 78: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/78.jpg)
72
Figure 17. Depositors and Borrowers from Commercial Banks (per 1,000 adults) 2010.
Source: World Bank World Development Indicators database
The MarketMix data estimates that in 2013 there were 4.1 million borrowers and 4.4
million depositors in the microfinancial sector. If a 2013 population estimate of 30 million
people is used as the basis for calculating the 60 percent of the population living as
microfinance’s target market SEL C-D, estimates of 4.1 million borrowers and 4.4 million
depositors indicate that microfinance is currently only serving 22 percent of that total market
share. In 2013, America’s Quarterly magazine estimated that only 28 percent of the Peruvian
adult population received loans from formal banks as a percent of GDP, which indicates that a
small portion of the adult population is actually using the formal credit system for borrowing
(AQ, 2013). Peru’s SEL C makes up its rapidly growing middle class and a class of consumers
0
500
1000
1500
2000
2500
Chile Colombia Argentina Brazil Uruguay Bolivia Peru Paraguay
Depositors with commercial banks (per 1,000 adults) 2010
Borrowers from commercial banks (per 1,000 adults) 2010
![Page 79: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/79.jpg)
73
that has the money to participate in formal services, yet at present, empirical evidence
demonstrates that 80 percent are not. As shown in Figure 18, well over 60 percent of SEL C and
D do not have deposit accounts and over 80 percent of that population segment is not using a
credit card.
Figure 18. Socio Economic Credit and Deposit Culture.
Source: Arellano Marketing, 2013.
In the 2010, less than 5 percent of SML enterprises cited access to finance as their biggest
obstacle and less than 15 percent cited access to finance as a major constraint, according to the
World Bank Enterprise Surveys (World Bank Enterprise Surveys, 2010). The Enterprise Surveys
found that over 80 percent of all SML enterprises have some type of checking or savings
account. However, when assessing formal enterprise usage of the formal credit system, it is
apparent that formal finance struggles with inclusion of small enterprises. The data found that
![Page 80: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/80.jpg)
74
over 85 percent of large and medium enterprises had outstanding loans at formal financial
institutions, whereas, only 52 percent of small enterprises did. Moreover, these statistics neglect
micro enterprises, which accounted for 92 percent of MSMEs formally registered in Peru in 2001
(Alvarado, 2001). In 1999, only 7 percent of micro enterprises were estimated to be using the
formal credit system, and current empirical evidence suggests that there has not been much of a
change in the last decade (World Bank FINDEX 2011; Alvarado et al, 2001).
In 2009 and 2011, the World Bank conducted a financial survey of Peru’s credit culture
and found that proximity to banks was the most commonly cited reason for not having an
account among lower income groups, after reasons associated with cost and time. Respondents
who had enough money to open a bank account believed that the travel required for making
deposits and withdrawals to be impractical (World Bank FINDEX, 2011). Despite these
respondent findings, empirically, the data shows that Peru has the greatest number of commercial
bank branches per 100,000 adults in Latin America (Figure 19), the greatest geographic branch
coverage in Latin America, and the fourth largest bank agent network in the world (Mas, 2008,
World Bank, 2012). In less than 10 years Peru tripled the number of bank branches and cajeros
corresponsales in rural districts (Inga-Falcon, 2013; Mas, 2008).
![Page 81: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/81.jpg)
75
Figure 19: Commercial Bank Branches (per 100,000 adults) 2011
Source: World Bank World Development Indicators database
In 2010, Peru received its third-time ranking by the Economist Intelligence Unit as the
world’s best climate for microfinance, which is the formal financial market choice for the
majority of Peru’s population as well as its MSMEs. Peru’s microfinancial sector has received
much acclaim by news outlets such as the Financial Times, America’s Quarterly, La Andina, and
various others based upon it is year over year incumbent position as the number one
microfinance climate in the world (EIU, 2010). In 2013, MarketMix listed data for over 70
regulated financial entities that operate throughout Peru’s 25 diverse administrative departments.
0
10
20
30
40
50
60
70
Commercial Bank Branches (per100,000 adults) 2011
![Page 82: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/82.jpg)
76
TABLE 3: Regulated Financial Institutions in Peru
Institution Target SEL Description
Commercial and
microfinance banks
(CMACs)
SEL A-C; middle
class
Commercial banks have long served elite and socio
economic levels A-B. Microfinance and commercial
banks have recently begun to target the new middle class
and a middle market informal sector.
Municipal savings
and credit banks
(CMACs)
Middle class;
SEL C-D.
CMACs are commercial banking’s largest competitor,
especially in the provinces. CMACs are regulated
institutions, owned but not majority controlled by the
municipal government. CMACs specialize in MSMEs
loans. CMACs got their beginnings as local pawnshops
and underwent a process of conversion in 1982.
Throughout the provinces there are still many pawnshops
that did not convert and continue to be a popular channel
of informal financing. In 2002, CMACs were granted the
privilege of operating throughout the country and offering
almost full financial services, with the exception of
checking accounts. MSMEs prefer CMACs and make up
51 percent of their client base. CMACs cater to the
middle class of Peru and those who consider themselves to
be progressive and adaptive (Arellano, 2013). There are
26 CMAS in Peru
Rural savings and
credit banks
(CRACs)
Small-scale
agricultural
producers; SEL
D-E.
Rural savings and credit banks (CRACs), were created in
1992 to focus on agriculture. Only recently did CRACs
begin to extend their services to micro and small
enterprises. Rural banks are regulated and are authorized
to receive deposits and offer a full-range of loan
services. Similar to CMACs they are not allowed to
provide checking accounts.
Entities for
development of
small and micro
enterprises
(EDPYMEs)
Informal and
formal small-
scale
entrepreneurs.
Entities for development of small and micro enterprises
(EDPYMEs), are non-bank regulated institution
specialized in lending to micro and small
businesses. Edpyme's do not receive deposits. Almost all
Edpyme's were formerly NGOs that converted into
regulated institutions in the nineties (Webb, 2010).
Government Banks Total Population Banco Central de Reserva del Peru (the Central Bank),
Banco de la Nación, COFIDE.
![Page 83: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/83.jpg)
77
The institutions listed in Table 3 are all formal institutions and are regulated by the
Superintendency of Banking and Insurance (SBS), which has been a championed as an example
of financial regulatory success in regards to the financial consumer protection industry (EIU,
2010). Surveys, industry ratings, and empirical data demonstrate Peru not only has quality
financial services but also the most widespread access to these services, yet participation and
usage remains among the lowest in Latin America. The empirical evidence requires a qualitative
analysis as a means to understand the phenomenon of formal financial inclusion in Peru. The
next section will examine informal credit system which began servicing the residual micro-credit
demand well before the 1980s and continues to be the formal financial sector’s biggest obstacle
(Čihák, Demirgüç-Kunt, Feyen, and Levine 2010).
Peru’s micro credit system was primarily informal until the late 1980s. Prior to the
1980s, micro and agricultural lending was solely provided through state and NGO-led initiatives.
Commercial banks, adopting orthodox financial philosophy, avoided microfinance because of the
perceived risks associated with the market. Guirkinger (2008) contends that the microfinancial
sector demand was too large for state and service-led projects and rather than servicing the
demand in an efficient and profitable way, government subsidies created an unequal and
underserviced market, full of distortions and inefficiencies. It was not until the first public-
private partnership13
between NGO, Accion Comunitaria del Peru (ACP) and the commercial
bank, Banco Wiese that microfinance had made real inroads to the credit market. The success of
13
ACP was a not-for-profit, communitarian bank in Lima that had established a relationship and
specialization in migrant district lending. The then popular commercial bank, Banco Wiese, partnered
with ACP by underwriting the loans that the NGO distributed to southern migrant districts throughout
Lima. ACP is now a majority shareholder in Peru’s first for-profit commercial bank dedicated to
microfinance, MiBanco.
![Page 84: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/84.jpg)
78
the project kicked off an era of partnerships that would emerge between NGOs and commercial
banks in migrant and traditionally underserved provincial districts. In 1998, Peru’s President
Alberto Fujimori, created a bank modeled after Bolivia’s BancoSol14
that would be an Peruvian
institution of national pride in finance and would be accessible by the majority of the population.
Fujimori established Peru’s first fully-regulated, commercial bank dedicated to microfinance that
year, MiBanco. MiBanco in English means “My Bank.” Fujimori named it My Bank to
represent that it was the bank of the people. The creation of MiBanco ushered in a decade long
market-led microfinance revolution in Peru (Guirkinger, 2008; Trivelli, 2003). Regulatory bodies
were established, evaluation tools developed, and private capital graced the industry. In 2000,
traditional banks entered the field vis-à-vis “downscaling” partnerships, and created new
branches and arms dedicated to microfinance. The flow of capital and new bank entry created a
competitive market, forcing microfinancial institutions to diversify their products, improve
efficiency, lower interest rates, and enhance formal financial service offerings (Webb, 2010;
Chu, Michael: 2013). Although formal sector competition increased, the greatest competition for
formal financial institutions was against the informal credit ecosystem that had acted as a parallel
industry and primary banking provider for the population. This thesis argues that informal credit
has underpinned and held together Peru’s economic informality for the past few centuries,
although the role of informal credit was not recorded until the last half of this century. This next
section will discuss the ways in which the informal credit system has offered itself to the
Peruvian population.
14
Bolivia took the official microfinancial leap of faith in 1992, creating the world’s first for-profit bank
dedicated to microfinance, Banco Solidario (BancoSol). In its first year of operation the bank was
profitable, had a return on equity of 28.9 percent, and quickly became a leader in the commercial banking
industry.
![Page 85: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/85.jpg)
79
The Informal Credit System in Peru
There is a diversity of options in the informal credit sector. A study conducted in 2000
examining banking preferences among Peruvian wholesale traders, micro-enterprises, and rural
households found that the majority of respondents preferred the informal credit market (Alvarado
et al, 2001). Over the last thirteen years, informal credit provision has remained a primary credit
provider in Peru’s financial sector. Over 65 percent of the Peruvian population is estimated to
bank within informal structures (BMI, 2013). This section will discuss the informal credit
options available to a Peruvian, concluding with the intermediary. An intermediary’s credit
provision is most closely related to the middle class, supply chain, and informal enterprise. They
are most likely the informal credit providers who underpin the informal economy in urban and
rural zones.
In Peru, the most traditional type of informal credit occurs among family, friends, and
neighbors (Avellano, 2013). Loans from friends and family are considered to be beneficial and
risk reducing in groups when a family is exposed to income related shocks. Pearlman (2010)
finds in Peru that family and friends are the principal source of funding for enterprise endeavors
or family emergencies. The author cites flexibility of loan terms as the determinant; large shocks
such as robbery, bribes, extrusion, and natural disasters make it not only difficult, but risky for a
borrower to meet strict repayment schedules. In Peru, extensive knowledge within social
networks allows for tailored repayment plans and encourages peer monitoring and reciprocal
lending (Besley, 1995). While family and friends are the preferred informal credit lender for
Peruvians, there are many other informal credit sources, which create an informal credit
ecosystem that shadows the formal financial system.
![Page 86: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/86.jpg)
80
Pawnshops are the most common source of credit in rural zones or where traditional
banking has not yet been established. Pawnshops operate in terms of future contracts, allocating
credit against the future delivery of products. The pawnshop lender then resells the product or
goods to wholesalers and intermediaries. The pawnshop’s liquidity comes from purchases by the
wholesalers. They are able to use the capital as a basis for creating the informal credit market
that exists between the shop and the farmer. Credit becomes interrelated at the pawnshop
between productive activities and commercial vendors.
Savings and Credit Associations (ROSCA) operate throughout the developing world and
are composed of groupings of people who know each other well and have strong ties. Although
ROSCAs typically have different names in different countries they operate in the same manner.
In Peru the provincial communities call ROSCAs, ¨ Unidades.¨ The group within the Unidad
shares risk and provides basic informal functions of lending and savings. Unidades are
characterized by memberships of six to forty individuals and a leader who handles the collection
and distribution of funds. Each member puts in a sum of money at a fixed term and it rotates
throughout the membership until each member has received credit, whereby a new term begins
(Adams and Canavesi de Sahonero, 1989). Unidades serve both economic and social functions
in their communities, allowing for ancillary benefits of community trust building and socializing.
Unidad or ROSCA is often preferred in rural communities because their relationships can allow
for more tailored loan terms within a group that also serves as a social community.
Speculators or professional lenders operate in groups and tend to be a last resort lender
due to their exorbitant interest rates. They know very little about the borrower but remain a
competitive part of the informal sector because they often do not require collateral or
![Page 87: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/87.jpg)
81
documentation. In 2009, one in five adults in Peru, cited lack of proper documentation as a
perceived barrier to formal financial services, regardless of income level (World Bank FINDEX,
2009). Hoff and Stiglitz (1990) find that the speculator or professional lender’s information
allows for less intensive requisites, documentation, and screening and monitoring processes. The
lenders are able to acquire privileged information regarding rural credit market cycles and
conditions, which allows them to require less collateral than a formal institution and at a lower
cost to the informal lender. Independent workers also turn to informal lenders because of the
upswings and unpredictability of their daily cash flows. Informal lenders can create personalized
contracts for independent workers and farmers, which require minimal documentation and
provide realistic time tables at a lower cost to the lender. These contracts, initially, may appear
less risky for the borrower; however, they often come at the cost of higher interest rates and a
lack of consumer protection and regulation (Boucher, 2005 and Guikinger, 2008).
Traders or informal market intermediaries are arguably the most powerful entities in
informal credit provision. Traders have the largest sums of capital and they work informally
among the pawnshop, farmers, and local merchants. The capital they manage is equivalent to the
capital that would incentivize a person to bank formally if they did not have the option of the
intermediary. Intermediaries allocate loans in the form of commercial and/or credit contracts.
They incorporate aspects of the commercial exchange and arrange contractual terms favorable to
the borrower, which they are able to do for the aforementioned reasons. Estimates suggest top
Peruvian intermediaries earn $2,000.00 dollars net per day. Assuming the intermediary works
five days a week annually, that is equivalent to $40,000 a month and $480,000 a year (Cáceres-
Barrantes, 2012). Intermediaries have minimal overhead costs, and in many cases only pay a
![Page 88: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/88.jpg)
82
monthly fee for their market stall. Their status as extralegal precludes them from sales and local
tax. Ambitious intermediaries are even part of informal renting schemes, and buy and rent out
stalls as an additional income generating activity. Cáceres-Barrantes (2012) conducted an
interview with a top potato intermediary who sells about 200 sacks per day (20,000 kilos) at an
estimated value of $5,748.00 dollars. The intermediary attests that her profits only amount to 30
percent of the total because she engages in landowner financing. Landowner financing is when a
landowner trades land and inputs on credit in exchange for a part of the production, which they
then use to leverage mixed contractual arrangements in the small scale production market
(Alvarado et al, 2001). Cáceres-Barrantes (2012) argues that the role of the intermediary as a
money lender underpins the entire informal credit system. Intermediaries are able to exert power
in the informal sector because of their supply chain control which is heavily contingent on their
role as “bankers.” Intermediaries own and control various aspects of the supply chain, which
can vary depending on the industry. In agriculture they control land cultivation, agricultural
production, transportation, trade routes, market stalls, and vendor access. The ability of
intermediaries to finance the supply chain and create contractual terms for the workers provides
the point of departure for understanding the sophistication of the informal credit market and its
role within Peruvian social networks and supply chains.
Formal financial inclusion is a fundamental aspect to economic growth and equality. As
shown by the empirical data, Peru’s formal microfinancial industry is underused by the majority
of the socioeconomic population it targets, yet evidence finds that the industry is accessible,
competitive, and one of distinction. The informal credit sector has an array of options that exist
as subset to established relationships and historical roots, which was discussed in Chapter II:
![Page 89: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/89.jpg)
83
Economic Informality: The Multidimensionality of Economic Informality in Peru: Root Causes.
Informal credit’s commercial ties to economic informality as shown by the intermediary inhibit
comprehensive formal financial inclusion in Peru. The next chapter addresses the tool of mobile
technology and how it can be used for financial inclusion as well as the creation of a mobile
ecosystem to assist future projects in formalization.
![Page 90: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/90.jpg)
84
Chapter V: Mobile Based Solutions for Formal Financial Inclusion
A modern and popular tool for sustainable development and financial inclusion is the
mobile phone. In 2008, there were 4.8 billion mobile subscribers worldwide and in 2012 the
global penetration rate was estimated to be at almost 90 percent (Rangan and Lee 2012; Inga
Falcon, 2012). By 2012, 148 mobile financial pilots have been rolled out throughout the world,
and 90 percent of those pilots were in developing countries (Inga-Falcon, 2012). Mobile phones
are being viewed as tools for economic empowerment with mobile-money as a bridge for
mobile-led development across the world (Rangan and Lee 2012). Peru has yet to roll out any
mobile technology pilot projects that target formal financial inclusion, although, the Peruvian
Superintendency passed legislation in 2013 that encourages mobile banking platforms to
promote social and financial inclusion (BMI, 2013).
This chapter will provide a brief overview of mobile penetration in Peru, the benefit of
mobile money and technology, and policy recommendations for stakeholders in formal financial
inclusion and economic formality. There are a multitude of challenges associated with the
introduction of mobile technology but its benefits and possibilities make it a relevant channel to
explore and a unique opportunity for formal stakeholders. While it is beyond the scope of this
thesis to explore all components associated with mobile technology, this thesis will deal two
primary elements that set the stage for a solution the formal economy can undertake to promote
formal financial inclusion as a primary and sequential step to greater levels of eventual economic
formality. The first element is the creation of a mobile financial ecosystem. The second is the
utility of the mobile application and how it can be developed to include social and economic
functions to achieve the long-term goals of formalization of enterprise.
![Page 91: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/91.jpg)
85
Mobile Penetration and Benefits for Formal Financial Inclusion and Enterprise
This section will begin with an assessment of mobile penetration and subscriptions in
Peru followed by an explanation of mobile technology’s benefits to formal financial inclusion
and enterprise. Every department in Peru has substantial cell phone penetration, with usage in the
jungle estimated to surpass 70 percent (Figure 18). In more than 120 districts in Peru, where
there are no formal financial services, there is mobile technology (Inga-Falcon, 2012). Mobile
subscriptions have grown exponentially since the 1990s and are expected to continue to rise
(Figure 19). Phones with increasing capabilities (smartphones) are beginning to overtake
simplistic phones (feature phones) as price point’s drop and socioeconomic mobility allows for
greater consumer access and desire for more sophisticated phones. The Chief Executive Officer
of the Frontier Strategy Group, Richard Leggett reasoned that, “Real increases in personal
income and access to credit will support growth across all retail categories, but consumer
electronics will outperform, as consumer taste becomes more sophisticated” (HBR blog, 2013).
A rising number of phones in developing countries have the ability to access internet in hotspots
as well as through pre- or post-paid plans.
![Page 92: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/92.jpg)
86
Figure 20: Mobile Phone Penetration per Department (2013)
Source: World Bank Development Indicators database
Key: Mobile Phone
Penetration:
Green: 70% or less
Blue: 70-80%
Yellow: 80% or more
![Page 93: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/93.jpg)
87
Figure 21: Mobile cellular subscriptions (per 100 people)
Source: World Bank Development Indicators database
Mobile phones have eliminated or reduced barriers for formal financial inclusion in
developing countries. Traditional barriers for formal financial inclusion have been the distance
of bank branches, high transaction costs and fees, minimum balance requirements, identification
requirements, and supplying the bank with a physical address (Rangan and Lee, 2012). The
utility of the mobile phone is that transactions can be done from the comfort of any location
where there is service. Costs have been reduced as banks are requiring less customer service
agents and transactions are more efficient. Banks using mobile products are able to provide
access to financial products to the poor at costs 35 - 85 percent lower than former bank
transactions and no longer require a minimum balance (Rangan and Lee, 2012). Identification
requirements are still an area that needs work but through the collection of data overtime,
0
5000000
10000000
15000000
20000000
25000000
30000000
35000000
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
Mobile cellular subscriptions (per 100 people)
Peru Mobile cellularsubscriptions
![Page 94: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/94.jpg)
88
requirements in the mobile market will become less stringent. Lastly, a physical address can be
overcome with tracking and GPS installation on many phones where there are not street
addresses or formal identifiers. For the customer, mobile banking has improved community
safety and time and cost savings. The “unbanked” is recognizing the benefits and it has resulted
in formal conversion. Fifty percent of M-Pesa clients had never used a formal banking service
before the introduction of the mobile banking product, according to a Vodafone study. The
penetration and reach of mobile devices across Peru and the increasing capabilities of their
platforms make them a competitive tool for formal financial inclusion.
Capitalizing on commercial incentives can make mobile technology a more competitive
tool against informal finance in Peru. A McKinsey study of 600 Chinese workers who traveled
for their jobs (sales people, taxi drivers, and the like) found that mobile phones provided a times
savings of nearly 6 percent, a productivity gain worth $33 billion in 2005 (Rangan and Lee,
2012). The ability of the intermediary to finance the supply chain, create contractual terms for
the workers, and establish social relationships creates the basis of what motivates these
individuals to bank informally. In Villa el Salvador mobile phones have been used as the first
point of contact with a client and through referrals when engaging new clients. Cáceres-
Barrantes’ research revealed that the microentreprenuers of Villa el Salvador are willing to use
and adopt mobile technology if they perceive it adds value to their business. Leveraging
technology to unify and brand commercial and industrial centers can provide new linkages,
awareness, cost reductions, greater competition, and sources of capital flows for the centers, and
most importantly formal financial inclusion and long-term economic formality.
![Page 95: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/95.jpg)
89
The market formalization that took place under the purview of MiBanco shows that there
is a will to formalize if given adequate space, information, and tools. While there are 1,000
informal enterprises, the 400 enterprises brought into formal banking and economic
formalization by MiBanco is evidence of a changing tide (Santestibean, 2013). The introduction
of technology to the market should draw in a more youthful crowd and has the potential to shift
the mentality of the rising generation in the urban, migrant district. The more exposure that the
youth and informal community receive to cleanlier and more efficient business practices will
encourage adoption, demand, and proliferation of formal services. Technology has the power to
break down the barriers that have traditionally held back formal sector growth and conversion.
The key to introducing mobile technology in Villa el Salvador and Villa Maria del Triunfo or
within any cluster that is experiencing informality is awareness, branding, and the incorporation
of aspects of the informal credit system. The inclusion of supply chain financing, greater access
to markets, contractual terms for the workers and the establishment of social relationships
through technology will add utility to mobile products for the individuals and/or enterprise.
![Page 96: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/96.jpg)
90
A Mobile Financial Ecosystem
Although mobile devices present a great opportunity for formal financial inclusion and
economic formalization, when dealing with the “unbanked” or informal sector population there
will still be challenges for formal banks to overcome. This section will address the necessity of
identifying strategies that will encourage the most adoption and proliferation of a mobile product
to create an operable ecosystem. For the mobile financial system to achieve full integration in an
economy, the majority of citizens must utilize the product and services offered. There are
various ways that formal stakeholders, such as the government, banks, and enterprise, can assist
in the process of formal financial inclusion. Mobile based financial inclusion exists through
various channels, Table 8, lists the types of mobile channels available to governments, banks,
and enterprise.
![Page 97: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/97.jpg)
91
TABLE 8. Mobile Financial Inclusion Channels
Type Description Product Examples
P2P: Person to Person This is the most common of
the platforms and facilities
transfers at the national level
and remittances at the
international level, services and
benefits are paid for based
upon transaction.
Providers of transfers at the
national level include: M-Pesa
in Kenya and True Money in
Thailand. Mobile Savings
Accounts: M-Kesho (Kenya
operated Safaricom); Savings
for Health: M-Pesa; Credit: M-
Pesa and M-Paisa in
Afghanistan; and External
Transfers: Smart Money and
G-Cash in Philippines.
P2B: Person to Business This facilitates payment of
goods and services a person
receives from a business or
enterprise.
Payment for Goods and
Services: M-Pesa in Kenya,
Smart Phone in the Philippines,
and Eko in India.
B2P: Business to Person Can be used to pay salaries or
services rendered from a
person for the business.
True Money in Thailand and
Smart Money in the
Philippines.
B2B: Business to Business Can be used among businesses
to pay one another for services
and goods. Corporations are
currently trying to explore this
with MSMEs.
G2P: Government to person This can be used to pay salaries
and can also be used for
conditional cash transfer
programs.
CCT: G-Cash in the
Philippines.
G2B: Government to Business Can be used by the government
to pay private entities for
services.
Source: Adapted from Patricia-Inga Falcon (2013)
![Page 98: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/98.jpg)
92
When choosing a strategy for mobile formal financial inclusion it important to assess
which option presents a comprehensive opportunity for proliferation. While P2P has worked in
the case of M-PESA it has not worked in other countries and has done very little for economic
formalization and social inclusion. P2P assumes both individuals have a bank account or are
mobile money service users, which is not the case in Peru that is looking to roll out pilot projects
within the next few years.
Initial options that provide the greatest potential for early market consumer adoption are
B2P and G2P. To increase formal financial inclusion and formal account usage, large formal
businesses with employees on payroll and government cash transfer programs, such as Juntos,
can issue direct payments to accounts connected to mobile products. B2P requires formal
employment but becomes a channel for diffusion through pleased customers. A customer, who
recognizes the benefits of mobile banking, such as safety, convenience, and cost savings, will
share with friends and family in the informal sector, encouraging further enrollment.
G2P is most effective in reaching informal workers who are part of government programs
and will become initial adopters and proponents of the service. The ancillary benefit of this is a
reduction of cash in communities and a wider engagement in P2P, P2B, and B2B by the first
adopters. Governments can also link the mobile product to the service offerings of Juntos, such
as applications that monitor vaccination and enrollment as well as pre and post-natal healthcare.
Multi-faceted uses of a mobile product will create a broader ecosystem of usability and perceived
functionality. The current stall in development is a classic problem of trickle-down economics; in
effect, the mobile financial revolution needs to occur from the bottom up. Once cash
transactions shift to mobile money transactions and there is a perceived value among all actors in
![Page 99: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/99.jpg)
93
the ecosystem, fluidity of capital flows from the base of the pyramid will facilitate transactions
throughout middle and top and in various facets of a person’s life, which can be made to include
healthcare and education.
![Page 100: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/100.jpg)
94
Mobile Applications: Social and economic function
There has yet to be a mobile money model and correlative product that is replicable
across borders and targets their financial inclusion platform as part of long-term economic
formalization (GSMA, 2012). The opportunity to create and develop a product of this nature will
be in mobile applications. This section will conclude with an overview of the utility of the
mobile application and the ways in which consumers are currently using applications. Peru’s
rising middle class of consumers provides a unique opportunity for Peruvian stakeholders. The
development of applications that complement mobile money and mobile banking solutions can
incentivize varying degrees of economic formalization.
Studies show that consumers don’t perceive applications as intrusive; rather they value
them for their functionality (Gupta, 2013). The mobile application has a perceived utility in the
domain of productivity, shopping, socializing, and information. Studies in how to deliver mobile
money products and applications to consumers by the International Finance Corporation, the
Institute of Peruvian, and various other interested scholars and organizations are revealing results
that mirror Harvard Business School’s finding for corporate marketing strategy to consumers.
While the motivations may vary among banks, governments, and corporations in Peru they are
all trying to reach the rising middle class consumer. Capitalizing on what the informal sector
needs the application to do to maximize its functionality should drive the design of the
application. Successful applications add value to consumers’ lives and enhance long-term
engagement with their provider. Gupta found applications that: add convenience, offer unique
value, provide social value, offer incentives and entertain, are quickly adopted by consumers.
![Page 101: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/101.jpg)
95
Sunil Gupta, the Head of Marketing at Harvard Business School, argues that smartphone
users spend, on average, 82 percent of their mobile minutes with applications and just 18 percent
with web browsers. Consumers are estimated to download about 40 applications to their phones
(out of more than a million available) and regularly use about 15 (Gupta, 2013). Gupta classifies
smartphone applications into five categories:
1. Games and entertainment.
2. Social networks.
3. Utilities, including maps, clocks, calendars, cameras, and e-mail.
4. Discovery, including apps for location, movies, and planning.
5. Brands, such as Nike and Red Bull.
According to Harvard Business Review’s recent study on application use, they find that
consumers have seven primary motivations for smart phone usage. Almost half of interactions
involved e-mail, SMS messages, and voice calls; however the other half of consumer usage
leaves a myriad of opportunities to create innovative solutions to formal financial inclusion and
economic formality. The study found that consumers used applications to accomplish goals such
as managing finance, health, and productivity, shopping, socializing, and for news and
information as shown in Figure 22 below.
![Page 102: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/102.jpg)
96
Figure 22. Seven Primary motivations for Smart Phone Usage
Source: Harvard Business Review, 2013.
Applying the aforementioned Gupta framework, convenience, unique social value,
incentives, and entertainment, to create an application that competes against informal sector
competition opens the doors for distinct possibilities. For example, a mobile money product
partnered with an application can offer convenience through multiple bill payments, such as
payments for electricity, telephone, etc. The International Finance Corporation’s mobile toolkit,
stresses the importance of multiple retail incentives when developing a mobile money product
![Page 103: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/103.jpg)
97
for a consumer to perceive a value. These incentives can be as simple as consolidating bills.
Applications can create unique value through relationships with local retailers allowing for direct
payment of purchases and related shopping functions. An application can utilize social media to
offer network functionalities, as a first step toward formalization of enterprise by creating games
that promote financial literacy and basic accounting skills. Formal service offerings need to be
perceived as more valuable and convenient than informal services. A bank can provide the
inroads to formality by becoming the backbone of an operable ecosystem of commercially
related entities that offer informal sector workers a range of activities and incentives to join the
formal sector.
![Page 104: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/104.jpg)
98
Policy Recommendation for Gamarra
The Gamarra cluster harbors a huge potential for Lima, but is blocked by challenges of
interoperability between the informal and formal actors of its ecosystem. A financial based
mobile solution to the Gamarra challenge would require an umbrella branding campaign that
gave pride to formality and the association of it with Gamarra. Porter (2000) argues that
nonpartisan, private sector led initiatives can identify obstacles and constraints and provide
solutions for a cluster. A cluster requires personal relationships to facilitate linkages, foster open
communication, and build trust. Successful cluster initiatives should facilitate, instigate, and
increase communications. In the case of Gamarra where there is distrust and fragmented
relationships, a neutral mobile based solution has tremendous opportunity to increase formal
financial inclusion and provide a nonpartisan platform to increase communication and formalize
the cluster. The current formal organizations are viewed as exclusionary and separate from the
informal system. History and deep seeded roots in state and elite exclusion have become the
foundation for the challenges the Johannesburg group will continue to meet if they expect to lead
the cluster’s transformation to formality. A neutral solution, such as the one that can be offered
in mobile based information technology, has the power to provide incentives, create new
partnerships, and identify key social influencers and stakeholders for both the formal and
informal sector.
![Page 105: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/105.jpg)
99
Policy Recommendation for The Villas
The microentreprenuers of Villa el Salvador have recognized the importance of mobile
technology in their businesses. Mobile phones have been used at the first point of contact with a
client and through referrals when engaging new clients. Leveraging technology to unify and
brand commercial and industrial centers can provide new linkages, awareness, cost reductions,
greater competition, and sources of capital flows for the centers, and most importantly formal
financial inclusion and formality. As proven by MiBanco’s formal market, there is the will to
formalize if given adequate space, information, and tools. While there are 1,000 informal
enterprises, the 400 enterprises brought into formal banking and formalization by MiBanco is
evidence that there are productive capital and great possibilities of opportunity, even amidst
challenges of poverty (Santestibean, 2013). The introduction of technology to the market will
expose news spaces and opportunities for the cluster. The key to this application is awareness,
branding, and utility, which can be applied to any application model within any cluster or
informal grouping.
![Page 106: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/106.jpg)
100
Conclusion
As Lima’s growth continues, the government and banks will need to devise more creative
and innovative solutions to the endogenous challenge of formal financial inclusion and economic
formality. As demonstrated in Chapter I, Peru’s growth is ushering in a new middle class, more
socioeconomic mobility, and with it a consumer market, which businesses formal and informal
alike are eager to tap. In a recent Harvard Business Review article the Frontier Strategy Group
estimated that private consumption in Peru will grow 54 percent between 2010 and 2015 (HBR
blog, 2013). However, the potential for market growth will be frustrated, as shown in Chapter II,
by high levels of economic informality, which affect a broad range of sectors insofar as it is
competition to Peru’s formal sector. The cluster cases of the Gamarra Market and the Villas, as
discussed in Chapter III, illustrate the ways in which distrust and the lack of agglomeration harm
the true innovation potential of the clusters. Furthermore, with multinational competition
entering to service a consumer market demand, there will be the need for these clusters to raise
standards, quality, and innovation to remain competitive. In addressing these current challenges
the intermediaries, discussed in Chapter IV, who does most of the urban and rural financing via
credit, should be addressed as a core component to meet these current market challenges. Mobile
technology, demonstrated in Chapter V, provides a unique opportunity for converting the
informal credit sector.
The obstacles Peru faces in the reduction of economic informality will require long-term
and strategic planning. The primary step of a mobile formal financial ecosystem begins to repair
a social contract between the informal sector and formal institutions. Taking this relationship as
a basis for continuum formalization planning should be implemented on a case by case basis. It
![Page 107: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/107.jpg)
101
should be noted that not all industries and sectors can or will benefit from formality. The aim
should be a reduction in the competition economic informality is causing for Peru’s formal
enterprises. Peru’s formal enterprises are the most important part of its economy and therefore
policy should aim to protect these enterprises and their workers. The sustainability of Lima’s
formal sector is put into question by the multinationals, which continue to raise standards.
Lima’s formal and informal hybrid model is subject to disadvantages and requires a more
productive balance in its model. Peru’s improved institutions require reparation of the social
contract, especially in urban areas, one that will continue to contribute to its growth and
prosperity; informality in rural regions will require additional measures and strategy. A thriving
middle class will continue to put pressure on weak structures either causing them to collapse or
to reform and converge into hybrid spaces driven by a virtually interconnected world.
Technology and inexpensive mobile financial access present a unique opportunity for Peru to
tackle an informal sector that exists as a result of culture and tradition, enabling a formal market
to transform and absorb it. Amidst the stalls and shanties, Villa el Salvador is growing to meet
the construction demand for a new shopping mall and meanwhile the formal enterprises in the
Gamarra Market wonder how they will be able to sustain their mixed economy that is weighed
down by informality, in the face of contemporary socioeconomic development and pressure by
multinationals. Peru waits with the hope that: “Soon, everything will be possible” (Schipani,
2013).
![Page 108: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/108.jpg)
102
Bibliography
Adams, Dale W., and de Sahonero, Marie L Canavesi. 1989. Rotating Savings and Credit
Associations in Bolivia/Les Institutions Informelles De Crédit En Bolivie (Roscas). Giorano
Dell-Amore Foundation. Savings and Development: Vol. 13, No. 3, pp. 219-36.
<http://www.jstor.org/stable/25830191>
ADOPEM. 2013. Microcredit in the Dominican Republic. PowerPoint presentation. Confidential
information shared in meeting.
Aker, Jenny, and Isaac Mbiti. June 1, 2010. Mobile Phones and Economic Development in
Africa. Center for Global Development Working Paper No. 211
<http://ssrn.com/abstract=1693963>
Allen, Franklin, Asli Demirguc-Kunt, Leora Klapper, and Maria Soledad Martinez Peria. 2012.
The Foundations of Financial Inclusion: Understanding Ownership and use of Formal
Accounts. World Bank Policy Research Working Paper No. 6290
<http://ssrn.com/abstract=2188803>
Alliance for Financial Inclusion. 2013. Bringing Smart Policies to Life: Data & Measurements:
Facilitating an increase in and improving the quality of financial data is critical for
producing evidence-based policy decisions. Print.
Alvarado, Javier, Felipe Portocarrero, Carolina Trivell, Efran Gonzales, Francisco Galarza, and
Hildegardi Venero.. 2001. El Financiamiento informal en el Perú: Lecciones desde tres
sectores. Análisis Económico. Vol. 20 pp. 290. IEP; COFIDE. Print.
Americas Quarterly. 2013. Peru Passes Mobile Banking Law | Americas Quarterly.AQ Blog: pp.
6. < http://www.americasquarterly.org/blogger/578?page=6>
Andina. November 3, 2013 (9:38). “Peru: Gamarra garment district expects one million
customers during Christmas season.”
<http://www.andina.com.pe/Ingles/Noticia.aspx?id=SPznzdPsiJQ=>
Atkinson, A. and F. Messy. 2012). Measuring Financial Literacy: Results of the OECD /
International Network on Financial Education (INFE) Pilot Study. OECD Working Papers
on Finance, Insurance and Private Pensions: No. 15, OECD Publishing.
http://dx.doi.org/10.1787/5k9csfs90fr4-en
Arellano Marketing. 2013. COFIDE Strategy. PowerPoint. Confidential information shared in
meeting.
![Page 109: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/109.jpg)
103
Auyero, Javier. 2000. The Logic of Clientelism in Argentina: An Ethnographic Account. Latin
American research review: pp. 55-81. Print.
Baanante, Miguel Jaramillo. 2013. The Incidence of Social Spending and Taxes in Peru.
Working Paper No. 9: Tulane University; Center for Inter-American Policy and Research;
Inter-American Dialogue. <
http://commitmentoequity.org/publications_files/CEQWPNo9%20IncidSocSpendTaxPeru%
20Jan%202013.pdf>
Bartolumeu Dias, Yran, Leonardo Gonçalves, Diego Ibañez, Sidney Massunaga, and Alexandre
Sawaya. 2011. Creating Value through Credit Card Partnerships in Latin
America. McKinsey on Payments. PDF on Web.
Becchetti, Leonardo, and Pierluigi Conzo. 2013. Credit Access and Life Satisfaction: Evaluating
the Nonmonetary Effects of Micro Finance. Applied Economics 45.9: 1201-17. Taylor and
Francis. < http://www.tandfonline.com/doi/abs/10.1080/00036846.2011.624086#.Uq-
7BfRDswE>
Besley, Timothy. 1995. Nonmarket Institutions for Credit and Risk Sharing in Low-Income
Countries. The Journal of Economic Perspectives Vol. 9, No.3: pp.115-27.
<http://www.jstor.org/stable/2138429>
Beuermann, Diether Wolfgang, Christopher McKelvey, and Carlos Sotelo. 2012. The Effects of
Mobile Phone Infrastructure: Evidence from Rural Peru. <
http://www.aae.wisc.edu/mwiedc/papers/2011/Beuermann_Deither.pdf>
Biz! News. May 24, 2013. “Announced that each year three thousand new microenterprises open
in Gamarra.” <http://www.bizusaperu.com/news_details.php?cat=1¬i=4919>
Boucher, Stephen R., Bradford L. Barham, and Michael R. Carter. 2005. The Impact of “market-
Friendly” Reforms on Credit and Land Markets in Honduras and Nicaragua. World
Development Vol. 33 No.1: pp.107-28. <
http://www.sciencedirect.com/science/article/pii/S0305750X04001858>
Braverman, Avishay, and Joseph E. Stiglitz. 1989. Credit Rationing, Tenancy, Productivity, and
the Dynamics of Inequality. Vol. 176. World Bank Publications. Print.
Business Monitor International. 2013. Telecommunications Report Peru Q4
2013.<www.businessmonitor.com>
Caballero, Luis Luis Alberto Caballero Parra. 2012. Strategic analysis of mobile money ventures
in Developing countries. Sloan School of Management. Massachusetts Institute of
Technology. <http://hdl.handle.net/1721.1/72969>
![Page 110: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/110.jpg)
104
Cáceres, Roxana Barrantes, et al. 2012. Efectos Del Uso Del Móvil En La Productividad De Las
MYPE: Estudio Exploratorio Del Sector Carpintería y Ebanistería En Villa el Salvador
(Español). Information Technologies & International Development Vol. 8 No.4: pp. 95-112.
< http://www.itidjournal.org/index.php/itid/article/view/958>
---. 2012. The Impacts of the use of Mobile Telephone Technology on the Productivity of Micro-
and Small Enterprises: An Exploratory Study into the Carpentry and Cabinet-Making Sector
in Villa el Salvador. Information Technologies & International Development Vol. 8 No.4:
pp. 77-94. < http://www.itidjournal.org/index.php/itid/article/view/957>
Campero, Alejandra, and Karen Kaiser. 2013. Access to Credit: Awareness and Use of Formal
and Informal Credit Institutions. No. 2013-07., Working Papers, Banco de México <
http://www.econstor.eu/handle/10419/83717>
Chaia, Alberto, Aparna Dalal, Tony Goland, Maria Jose Gonzalez, Jonathan Morduch, Robert
Schiff. 2009. Half of the World is Unbanked. Finanacial Access Inniatiative Framing Note.
<http://www.microfinancegateway.org/gm/document-1.9.40671/25.pdf>
Chong, Alberto, José Galdo, and Jaime Saavedra-Chanduví. 2007. Informality and productivity
in the labor market: Peru 1986-2001. IDB Working Paper, No. 511.
<http://ssrn.com/abstract=1820879>
Chu, Michael and J. Hazell in HBS No. 307-078 (Boston: Harvard Business School Publishing,
2007) p. 13; MiBanco Exhibit 2.
Čihák, Martin, et al. 2012. Benchmarking Financial Systems Around the World. World Bank
Policy Research Working Paper, No.6175. <http://ssrn.com/abstract=2152254>
Čihák, Martin, Asli Demirgüç-Kunt, Erik Feyen, and Ross Levine. 2010. Financial Development
in 205 Economies, 1960 to 2010.World Bank Group: pp. 1-32. <
http://www.nber.org/papers/w18946>
Cirasino, Massimo. 2011. Payment Systems Worldwide: A Snapshot. Outcomes of the Global
Payment Systems Survey 2010. Financial Infrastructure Series Payment Systems Policy and
Research, Washington, DC: World Bank.
Claessens, Stijn. 2009. Competition in the Financial Sector: Overview of Competition
Policies. Vol. 24 No. 1: pp. 83-118. The World Bank Research Observer.
<10.1093/wbro/lkp004>
Clarke, George RG, Heng-fu Zou, and Lixin Colin Xu. 2003. Finance and Income Inequality:
Test of Alternative Theories. Vol. 2984 . World Bank Group. Print.
![Page 111: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/111.jpg)
105
Clift, Jeremy and de Soto, Hernando. 2003. Interview: Hearing the Dogs Bark. Finance and
Development. International Monetary Fund. <
http://www.imf.org/external/pubs/ft/fandd/2003/12/pdf/people.pdf>
Conger, Lucy, Inga-Falcon, Patricia, and Richard Webb. 2009. The Mustard Tree: A History of
Microfinance in Peru. Universidad de San Martin de Porres, Lima. Print.
Conning, Jonathan. 1999. Outreach, Sustainability and Leverage in Monitored and Peer-
Monitored Lending. Journal of Development Economics Vol. 60 No.1: pp. 51-77.
<http://www.sciencedirect.com/science/article/pii/S030438789900036X>
Conning, Jonathan, and Christopher Udry. 2007. Rural Financial Markets in Developing
Countries. Handbook of agricultural economics. Vol. 3: 2857-908. <
http://www.sciencedirect.com/science/article/pii/S1574007206030568>
David Bornstein. How to Change the World: Social Entrepreneurs and the Power of New Ideas.
Oxford: Oxford University Press, 2007. Print.
Davidson, N., and C. Pénicaud. 2012. State of the Industry: Results from the 2011 Global Mobile
Money Adoption Survey. GSMA. < http://www.gsma.com/mobilefordevelopment/wp-
content/uploads/2012/05/MMU_State_of_industry_AW_Latest.pdf >
de la Torre, Augusto, Alain Ize, and Sergio L. Schmukler. 2011. Financial development in Latin
America and the Caribbean: the road ahead. World Bank Publications. Print.
de la Torre, Augusto, Erik Feyen, and Alain Ize. 2011. Financial Development: Structure and
dynamics. World Bank Policy Research Working Paper Series. < DOI:
10.1093/wber/lht005>
de Soto, Hernando.1989. The Other Path. Harper & Row New York. Print.
de Soto, Hernando. 2001. The Mystery of Capital. Vol. 38, No. 1. International Monetary Fund.
< http://www.imf.org/external/pubs/ft/fandd/2001/03/desoto.htm>
del Pozo-Vergnes, Ethel. 2013. From Survival to Competition: Informality in agrifood markets in
countries under transition, The Case of Peru. IIED Sustainable Markets Paper.
<http://pubs.iied.org/pdfs/16533IIED.pdf>
Demirgüç-Kunt, Asli, and Ross Levine. 2008. Finance, Financial Sector Policies, and Long-Run
Growth. Policy Research Working Paper, No. 4469. World Bank Group. < http://www-
wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2008/01/07/000158349_
20080107115116/Rendered/PDF/wps4469.pdf>
![Page 112: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/112.jpg)
106
Demirgüç-Kunt, Aslı, Thorsten Beck, and Patrick Honohan. 2008. Finance for all?: Policies
and pitfalls in expanding access. Vol. 41792. World Bank Publications. Print.
Donner, Jonathan, and Marcela X. Escobari. 2010. A review of evidence on mobile use by micro
and small enterprises in developing countries. Journal of International Development. Vol. 22
No.5: pp. 641-658.
Dunn, Elizabeth and Monique Cohen. 1999. Microfinance clients in Lima, Peru: Baseline report
for aims core impact assessment. Assessing the Impact of Microenterprise Services (AIMS)
Washington, USA. < http://pdf.usaid.gov/pdf_docs/Pnacg045.pdf>
Ebentreich, Alfredo. 2005. Microfinance Regulation in Peru: Current State, Lessons Learned,
and Prospects for the Future. No. 4. Microfinance Regulation and Supervision Resource
Center.< http://www.sa-
dhan.co.in/Adls/Dl1/RegSupr/MicrofinanceRegulationPeruCurrentState.pdf>
Economic Intelligence Unit. 2013. Global Microscope on the Microfinance Business
Environment.
< http://www.eiu.com/Handlers/WhitepaperHandler.ashx?fi=EIU_MICROFINANCE_2013
_WEBr1.pdf&mode=wp&campaignid=2013Microscope>
Eliasson, Gunnar, and Christopher Green. 1998. Microfoundations of Economic Growth: A
Schumpeterian Perspective. University of Michigan Press. Print.
Enterprise Surveys. The World Bank Enterprise Surveys Database. 2013. International Finance
Corporation and The World Bank. <http://www.enterprisesurveys.org/>.
Eschborn. 2008. Costs of Corruption: Everyone Pays – And the Poor More than others. Division
State and Democracy. UN Convention against Corruption (UNCAC), <
http://www.giz.de/fachexpertise/downloads/gtz2008-en-german-uncac-project-costs-of-
corruption.pdf>
Farber, Dan. 2013. Mobile Subscriptions Poised to Outnumber the World's Population. CNET
News. CBS Interactive, 18 July 2012. Live Stream.
Geertz, Clifford. 1963. Social Development and Economic Change in Two Indonesian Towns:
Peddlers and Princes. Chicago: University of Chicago Press. Print.
Gerz, Astrid, and François Boucher. 2006. "4 Mantecoso Cheese in Peru: Organizing to Conquer
the National Market." Royal Tropical Institute (KIT) and CIRAD. KIT Bulletin no. 372. pp.
104. < http://www.mamud.com/originbasedproducts.htm>
![Page 113: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/113.jpg)
107
Gupta, Sunil. 2013. The Mobile Banking and Payment Revolution. The European Financial
Review: February – March: 2013. Harvard Business School.
<http://www.hbs.edu/faculty/Publication%20Files/The%20Mobile%20Banking%20and%20
Payment%20Revolution1_b37fc319-e15f-46c8-b2f9-c0d4c8327285.pdf>
Guirkinger, Catherine. 2008. Understanding the coexistence of formal and informal credit
markets in Piura, Peru. World Development Vol. 36 No.8: pp. 1436-1452. <
http://www.elsevier.com/locate/worlddev>
Hart, Keith. 2005. Formal Bureaucracy and the Emergent Forms of the Informal Economy.
United Nations University. Print.
Hellström, Johan, and Per-Einar Tröften. 2010. The Innovative use of Mobile Applications in
East Africa. Swedish International Development Dooperation Agency (Sida). <
http://sidapublications.citat.se/interface/stream/mabstream.asp?filetype=1&orderlistmainid=
2861&printfileid=2861&filex=3830607245054>
Helms, Brigit. 2006. Access for all: Building Inclusive Financial Systems. CGAP. Washington,
DC. <http://www.dochas.ie/Shared/Files/2/Access_for_all.pdf>
Hoff, Karla, and Joseph E. Stiglitz. 1990. Introduction: Imperfect Information and Rural Credit
Markets: Puzzles and Policy Perspectives. The World Bank Economic Review Vol. 4 No.3:
pp. 235-50.
Honohan, Patrick. 2004. Financial Sector Policy and the Poor: Selected Findings and Issues.
World Bank Publications. Print.
Hughes, Nick, and Susie Lonie. 2007. M-PESA: mobile money for the “unbanked” turning
cellphones into 24-hour tellers in Kenya. Innovations: Technology, Governance,
Globalization Vol. 2 No.1-2: pp. 63-81.
INEI. Peru’s National Statistic Database. Last accessed: October 2013.
Inga Falcon, Patricia. 2012. Inclusion financiera a traves de Servicos financieros móviles. San
Isidro: Universidad San Martin de Porres. Print.
Interamerican Development Bank (IADB). 2005. Recommendationa and Best Practices on
Taxation of SMEs in Latin America., IADB Publication, Washington, DC. <
http://www.iadb.org/intal/intalcdi/PE/2013/13154.pdf>
International Finance Corporation. IFC Mobile Money Scoping, Country Report: Peru.
2011. International Finance Corporation. Power Point. <
![Page 114: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/114.jpg)
108
http://www.ifc.org/wps/wcm/connect/ff940d804a02ec039d90fdd1a5d13d27/RetailPayments
-IFC-LAC-%2BPeru_final.pdf?MOD=AJPERES>
Jenkins, Beth. 2008. Developing Mobile Money Ecosystems. Washington, DC: International
Finance Corporation and Harvard Kennedy School. < http://www.hks.harvard.edu/m-
rcbg/papers/jenkins_mobile_money_summer_008.pdf>
Kaboski, Joseph P., and Robert M. Townsend. 2012. The Impact of Credit on Village
Economies. American Economic Journal, Applied economics Vol. 4 No. 2: pp. 98. <DOI:
10.1257/app.4.2.98>
Kelly, Tim. 2012. Latin America Leads Global Mobile Growth. ICT Policy. The World Bank
Group. <http://www.worldbank.org/en/news/feature/2012/07/18/america-latina-telefonos-
celulares>
King, Robert G., and Ross Levine. 1993. Finance and Growth: Schumpeter might be Right. The
Quarterly Journal of Economics Vol.108 No.3: pp. 717-37. <
http://links.jstor.org/sici?sici=0033-
5533%28199308%29108%3A3%3C717%3AFAGSMB%3E2.0.CO%3B2-4&origin=repec>
Klapper, Leora F., and Inessa Love. 2011. Entrepreneurship and Development: The Role of
Information Asymmetries. The World Bank Economic Review Vol. 25 No.3: pp. 448-55. <
DOI: 10.1093/wber/lhr044>.
Leggett, Richard. November 28, 2013 (12:00 pm), “As Emerging Markets Slow, Firms Search
for “New” BRICs.” Harvard Business Review Blog Network.
<http://blogs.hbr.org/2013/11/as-emerging-markets-slow-firms-search-for-new-brics/>
Levine, Ross. 2005. Finance and Growth: Theory and Evidence. Handbook of economic
growth Vol. 1: pp. 865-934.
Loayza, Norman. 2007. The Causes and Consequences of Informality in Peru. Serie de
Documento de Trabajo: 2007-018. The World
Bank. <http://www.bcrp.gob.pe/docs/Publicaciones/Documentos-de-Trabajo/2007/Working-
Paper-18-2007.pdf.>
Loayza, Norman V. 1997. The Economics of the Informal Sector: A Simple Model and some
Empirical Evidence from Latin America. Carnegie-Rochester Conference Series on Public
Policy. Print.
Lomnitz, Larissa Adler. 1988. Informal Exchange Networks in Formal Systems: A Theoretical
Model. American Anthropologist Vol. 90. No. 1: pp. 42-55.
<http://onlinelibrary.wiley.com/doi/10.1525/aa.1988.90.1.02a00030/pdf.>.
![Page 115: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/115.jpg)
109
Lucas Jr, Robert E. 1988. On the Mechanics of Economic Development. Journal of Monetary
Economics. Vol. 22 No.1: pp. 3-42. Paris School of Economics. <
http://www.parisschoolofeconomics.eu/docs/darcillon-
thibault/lucasmechanicseconomicgrowth.pdf>
Marcelli, Enrico A., and Zagros Madjd-Sadjadi. 2008. Fire in the Firehouse? Preference
Falsification and Informal Economic Activity in Peru. American Review of Political
Economy: pp. 51. <http://arpejournal.com/ARPEvolume6number1/MarcelliMadjd-
Sadjadi.pdf>
Marcouiller, Douglas, Veronica Ruiz de Castilla, and Christopher Woodruff. 1997. Formal
Measures of the Informal-Sector Wage Gap in Mexico, El Salvador, and Peru. Economic
development and cultural change: Vol. 45 No.2: pp. 367-392.
Marr, Ana, León, Janina and Ponce, Fátima. 2012. Financial inclusion of the poor in Peru:
explanatory factors and determinants. In: Latin American and Caribbean Economic
Association (LACEA) and Latin American Meeting of the Econometric Society (LAMES):
2012 Annual Meetings, 1-3 Nov 2012, Universidad del Pacifico at Lima, Peru.
MarketMix. 2013. Microfinancial Database. < http://www.mixmarket.org/>
Mas, Ignacio. 2008. An Analysis of Peru’s “Cajeros Corresponsales.” CGAP Microfinance
Gateway. < http://www.microfinancegateway.org/p/site/m//template.rc/1.9.59415>
Mas, Ignacio, and Hannah Siedek. 2008. Banking through Networks of Retail Agents. GSMA,
CGAP. < http://www.cgap.org/publications/banking-through-networks-retail-agents>
McKechnie, Laura. 2006. Property Rights Reform in Peru: Why Titles do not Increase Access to
Micro-Credit. Journal of Development of Social Transformation. <
http://www.maxwell.syr.edu/uploadedFiles/moynihan/dst/mckechnie6.pdf?n=256>
Minges, M., and Kelly, T. 2012. Information and Communication for Development: Maximizing
Mobile. infoDev; The World Bank, Washington DC. <
http://ttarl.org/attachments/IC4D2012Overview.pdf>
Morawczynski, Olga; Pickens, Mark. 2009. Poor People Using Mobile Financial Services :
Observations on Customer Usage and Impact from M-PESA. World Bank, Washington, DC.
<https://openknowledge.worldbank.org/handle/10986/9492>
Muto, Megumi, and Takashi Yamano. 2009. The impact of mobile phone coverage expansion on
market participation: Panel data evidence from Uganda. World Development Vol. 37
No.12: pp. 1887-1896.
![Page 116: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/116.jpg)
110
Neuwirth. 2012. Live Stream. TED: Ideas Worth Spreading. TedTalks, June 2012.
Ollman, Bertell. 1999. Market Economy: Advantages and Disadvantages Market Economy:
Advantages and Disadvantages. Talk at Nanjing Normal University, Nanjing, China. NYU
Blog.
Olviera, Juan Castro. November 11, 2013 (1:11 am). “Cheap Chinese textiles slam Peru's
garment industry.” L’Agence France-Presse (AFP). <
http://au.news.yahoo.com/a/19767544/cheap-chinese-textiles-slam-perus-garment-industry/>
Oxford Business Group. 2012. Modernising Tradition: Lima’s Gamarra District Is Making a
Name for Itself in Textiles. The Report: Peru 2012. Oxford Business Group.
Oviedo, Ana-Maria, Mark Thomas, et al. 2004. Economic Informality: Causes, Costs, and
Policies A Literature Survey of International Experience. World Bank Working Paper No.
167. The World Bank Group. Print.
Peachey, Steven, and Alan Roe. 2004. Access to Finance: A Study for the World Savings Banks
Institute. Oxford Policy Management. <
http://www.microfinancegateway.org/gm/document-
1.9.29564/22078_access_2_finance.pdf>
Pearlman, Sarah. 2010. Flexibility matters: Do more rigid loan contracts reduce demand for
microfinance. No. 2010/10. CAF Working Paper.
Perry, Guillermo; Maloney F, William; Arias S, Omar; Fajnzylber; Mason, Andrew D; Saavedra-
Chanduvi, Jamie. 2007. Exit and Exclusion. World Bank Latin American and Caribbean
Studies. Print.
Peruvian Times, May 3, 2012 (11:44 a.m.),“Humala Gives Approval To Raise Minimum
Wage” < http://www.peruviantimes.com/03/humala-gives-approval-to-raise-minimum-
wage/15634/>
Plattner, Stuart. 1989. Economic Anthropology. Stanford: Stanford University Press. Print.
Ponce, Ramón. 1994. Gamarra: Formación, Estructura y Perspectivas. Fundación Friedrich
Ebert, Lima. Print.
Porter, Michael E. 2000. Location, competition, and economic development: Local clusters in a
global economy. Economic development quarterly, 14, no. 1: pp. 15-34.
Porter, Michael E. 2011. Competitive Advantage of Nations: Creating and Sustaining Superior
Performance. Simon and Schuster. Print.
![Page 117: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/117.jpg)
111
Porter, Michael E., Christian Ketels, and Mercedes Delgado. 2007. The Microeconomic
Foundations of Prosperity: Findings from the Business Competitiveness Index. The Global
Competitiveness Report 2007–2008. World Economic Forum. <
http://www.labconvergencia.org:16080/sitio1/MEL/HTML_nva_version-
bckp2011/ana_estra_ind/Documentos/U1/The_Microeconomic_Foundations.pdf>
Portes, Alejandro, Manuel Castells, and Lauren A. Benton. 1989. The Informal Economy:
Studies in Advanced and Less Developed Countries. Johns Hopkins University Press
Baltimore. Print.
Rojas Ramos, Moisés K. 2012. La experiencia de compra en Gamarra. Lima: Escuela
Académico Profesional de Sociología. Print.
Rangan, V. Kasturi, and Katharine Lee. 2012. Mobile Banking for the Unbanked. Harvard
Business School Marketing Unit Case.511-049.
Reyes, G., L. Allain, and R. Mazer. 2011. Financial Inclusion Indicators for Developing
Countries: The Peruvian Case. CGAP, Washington, DC. <
http://www.microfinancegateway.org/p/site/m/template.rc/1.9.55712/>
Roever, Sally Christine. 2012. Negotiating Formality: Informal Sector, Market, and State in
Peru. <http://wiego.org/sites/wiego.org/files/publications/files/Roever-Negotiating-
Formality.pdf>
Schipani, Andres. January 9, 2013 (2:01pm), “A middle class emerges from Peru growth.”
Financial Times. < http://www.ft.com/cms/s/0/b83d36f4-4a92-11e2-968a-
00144feab49a.html#axzz2ni3F68DB>
Schneider, Friedrich; Buehn, Andreas; Montenegro, Claudio E. 2010. Shadow Economies All
over the World : New Estimates for 162 Countries from 1999 to 2007. World Bank.
<https://openknowledge.worldbank.org/handle/10986/3928>
Schumpeter, Joseph A. 1951. Essays: On Entrepreneurs, Innovations, Business Cycles, and the
Evolution of Capitalism. Transaction Publishers, New Jersey. Print.
Seligmann, Linda J. 2004. Peruvian Street Lives: Culture, power, and economy among market
women of Cuzco. University of Illinois Press. Print.
Shinde, Shivani. 2011. Think Innovation: Mobile apps ride on rural India. Business Standard. <
http://www.business-standard.com/article/technology/think-innovation-mobile-apps-ride-on-
rural-india-111091900063_1.html>
![Page 118: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/118.jpg)
112
Smith, J. Barry, and Morton Stelcner. 1990. Modeling Economic Behavior in Peru's Informal
Urban Retail Sector. Working Paper Series, No: 469. World Bank Publication. <
http://econ.worldbank.org/external/default/main?pagePK=64165259&theSitePK=469372&p
iPK=64165421&menuPK=64166093&entityID=000009265_3960929234758>
Tanaka, Martin and David Sulmont Haak. 1999. "Del" Jirón" al" boulevard" Gamarra:
estrategias políticas y gobierno local en la Victoria-Lima. El poder visto desde abajo:
democracia, educación y ciudadanía en espacios locales." Urbanización, Migraciones y
Cambios en la Sociedad Peruana, serie: 14: pp. 19-102. IEP. Print.
Tarazi, Michael, and Paul Breloff. 2010. Nonbank E-Money Issuers: Regulatory Approaches to
Protecting Customer Funds. Focus Note 63, CGAP, Washington, DC.<
http://www.cgap.org/publications/nonbank-e-money-issuers>
Tegel, Simeon. Feburary 20, 2012 (6:00 am). “Peru, Latin America’s hidden growth story.” <
http://www.globalpost.com/dispatch/news/regions/americas/120217/peru-latin-america-
economy-growth>
Tokman, Victor E. 2008. Informality in Latin America: Facts and Opportunities. WEIGO;
OECD. Santiago. <
http://previous.wiego.org/publications/SIDA_regional_reviews/Informality_in_Latin_Ameri
ca_Tokman_2008.pdf>
Tuesta, David. 2011. El problema de la informalidad: La agenda de inclusion para el Peru.
PowerPoint. Comex Peru-Sociedad de Comercio Exterior del Peru, Lima.
---. 2007. Modernizing the Informal Sector. UN/DESA Working Paper. Vol. 42: pp. 1-13.
United Nations. 2006. Building Inclusive Financial Sectors for Development. U.N. Department
of Economic and Social Affairs and the United Nations Capital Development Fund. Print.
UNDP, HDR. 2004. Unleashing Entrepreneurship: Making Business Work for the Poor. New
York, USA: UNDP.
USAID.2005. Removing Barriers to Formalization: The Case for Reform and Emerging Best
Practice. OECD, USAID. <http://www.oecd.org/dac/povertyreduction/38452590.pdf>
van Dijk, Meine Pieter, and Roberta Rabellotti. 1997. Enterprise Clusters and Networks in
Developing Countries. Taylor and Francis e-Library. Print.
Vigo, Manuel. May 29, 2013. “Lima real estate prices increase in first quarter of 2013. Peru this
Week.” National News. http://www.peruthisweek.com/news-lima-real-estate-prices-
increase-in-first-quarter-of-2013-100022
![Page 119: A Reassessment of the Drivers of Economic Informality in ...](https://reader031.fdocuments.us/reader031/viewer/2022022217/6214a2af5096754de5440b62/html5/thumbnails/119.jpg)
113
Vigo, Manuel. October 23, 2012. “Peru: Gamarra sales to reach record high over Christmas
season.” National News. < http://www.peruthisweek.com/news-peru-gamarra-sales-to-reach-
record-high-over-christmas-season-13004>
Vilchez Mónica Brañez. 2008. Programa Urbano. Diagnóstico de empleo de calidad de las
mypes del sector maderero de Villa ek Salvador y Villa Maria del Triunfo.Línea de
Desarrollo Económico del Programa Urbano de Desco
<http://www.urbano.org.pe/downloads/documento/Diagnostico_Empleo_MYPES_Maderera
_VES_VMT.pdf?
Visser, Evert-Jan. 1999. A comparison of clustered and dispersed firms in the small-scale
clothing industry of Lima. World Development Vol. 27 No. 9: pp. 1553-1570.
Von Pischke, John D., Dale W. Adams, and Gordon Donald. 1983. Rural financial markets in
developing countries. Johns Hopkins. Print.
Webb, Richard. 2013. Conexión y Despegue Rural. Universidad San Martin de Porres. Fondo
Editorial. Print.
World Bank Group. 2013. Doing Business 2013: Smarter Regulations for Small and Medium-
Size Enterprises. World Bank Publications.
---.2013. World Bank World Development Indicators.
<http://data.worldbank.org.proxy.library.georgetown.edu/data-catalog/world-development-
indicators>.
---.2011. Global Financial Inclusion (Global Findex) Database.
<http://data.worldbank.org/datacatalog/financial_inclusion>
Subsequent Notes:
Wilfred Santestibean, in-person interview with Cooperative President of Villa Maria Del Triunfo
MiBanco market, July 14, 2013.