Historical and Ethnographic Perspectives on Informal Finance: Symposium Report

Daivi Rodima-Taylor (Boston University) and Elise Dermineur Reuterswärd (Umeå University)

The interdisciplinary symposium Informal Financial Markets: Now and Then. From Pre-Banking to Bitcoin that took place at Umea University from January 21-23, 2020, brought together a diverse group of scholars to discuss the characteristics, functions and importance of informal credit markets, and the impacts of technology on these. The discussions drew on historical as well as ethnographic studies of financial informality.

In today’s world where de-personified exchange has loosened social ties between individuals, and technology and code aspire to be a proxy for trust, informal credit and cooperation occupy an ambiguous space.  To better understand the challenges posed by financial formalization and technology, the symposium suggested attention to past practices. In pre-industrial Europe, most financial transactions took place through peer-to-peer lending networks. It is estimated that nearly 90% of transactions in early modern Englandwere carried out on credit. In Sweden, most credit transactions took the form of peer-to-peer lending exchange until the nineteenth century. A chronic shortage of money as a medium of exchange made credit essential for daily transactions; but these markets were prolific also because they were embedded in local communities and social systems.

Today, informal credit arrangements are an important part of the financial system of developing countries, fueled by the lack of banking institutions willing to extend small loans to low income consumers. Peer-to-peer lending comprises the majority of credit transactions in those regions, many of which take place through informal Rotating Saving and Credit Associations (ROSCAs). In South Africa, a country of nearly 57 million inhabitants, there have been reported to exist more than 800,000 ROSCAs (stokvels): black South Africans invest approximately 49 billion Rand in stokvels per year.

Recently, technology has added a new twist. Many stokvels in South Africa communicate via social media applications, such as WhatsApp and Facebook groups, and some manage group activities digitally. In 2017, the first blockchain based ROSCA platform was developed utilizing smart contracts on the Ethereum network. In Sweden, the government has recently considered introducing national digital currency: e-krona. It could be the first country to switch entirely to a cashless society. What are the impacts of the ongoing global digitization to mutual help and social fabric of the communities?

Historical and contemporary case studies of the symposium cast light on the ways in which informal financial markets and networks have formed and functioned and how wealth was circulated in these, exploring gendered experience as well as impacts on poverty. Discussions highlighted the changing patterns of intermediation that accompany institutional and technological changes  in informal credit markets.

Caroline Shenaz Hossein’s keynote focused on black ‘Banker Ladies’ who engage in solidarity economy in contemporary slums of big cities through rotating savings and credit associations. These informal mutual aid groups that are based on trust networks are widespread among Haitian-born Canadian women who find themselves largely excluded from the services of the commercial banks. Shenaz Hossein has studied similar mutual support groups in the urban areas of Jamaica, Guyana and Haiti, where such informal banking systems provide not only coping tools for livelihood survival, but also social connectedness, and avenues for political action.

The relationships between moral economy and financialization were examined in the study by Dermineur Reuterswärd and Svetiev. At the example of case studies of non-intermediated credit relationships spanning historical records of pre-industrial France and Finland and the stokvels of contemporary KwaZulu Natal, the authors documented changes in financial intermediation, with implications to trust, agency, and sociality.

Stokvel meeting in KvaZulu Natal, South Africa. Photo: Elise Dermineur Reutersward

Women’s financial strategies in medieval financial markets have reflected broader gender inequalities present in those societies, as well as women’s reliance on diverse financial instruments, social networks, and transactional modes. Bardyn’s analysis of women’s involvement in peer-to-peer lending in two cities of the late medieval Low Countries revealed gender specific borrowing strategies that related to broader patterns of exclusion. Due to their marginalization in the guild-controlled economy, women participated in the capital markets more as investors than borrowers. Men and women thus played structurally different roles in the late medieval economy of Antwerp and Leuven, with women’s economic agency to access credit remaining limited. Pompermaier describes how in the 18th century Venetian society, women participated in a dense network of exchanges through which significant supplies of objects and money circulated – often using their bridal trousseaus as significant assets. These networks involved complex interactions between different credit circuits and exchanges and contracts of different kinds, including hiring out and pawning of objects. Women therefore often emerged as real managers of their families’ wealth through practices such as pawning, hiring and lending, while men’s economic practices were more aimed at simple consumption.

The social dimensions of finance carried importance even in the presence of a significant formal sector. Through a detailed case study that investigates the formal and informal credit markets in the Netherlands in 1921, Gelderblom, Jonker, Peeters and de Vick found that commercial banking services were far less important than private borrowing and lending – people preferred to find solutions within their network rather than going to a bank. The penetration of formal financial services was therefore directly dependent on prevailing social institutions and networks, and opportunities and constraints created by these.  Zuijderduijn presented novel perspectives on the development of the market for public debt in the urban belt of Europe in the later Middle Ages. Many cities were successful in borrowing large sums from foreigners who invested in the public debt of distant cities and city states without access to decision-making over spending. Diverse factors such as community responsibility system in the cities, as well as desire to create a diversified portfolio of assets, contributed to the foreigners becoming important investors in public debt, implying a re-assessment of the financial power and markets for public debt in small polities.

Informal moneylending in many low-income communities has often been seen as a product of a disruption in social solidarity, resulting in exploitative usurious practices. Durst, however, shows at the example of rural Hungary that in order to understand the complex informal moneylending practices, a socially contextualized analysis is called for. Exploring the still scarcely studied connections between kinship and contemporary informal moneylending in the predominantly Roma village, Durst differentiates between several kinds of usurious practices with their particular social functions and moral evaluations, and suggests that informal credit as a coping mechanism can contribute towards larger social and political stability. Historical parallels can also be found. Analyzing the informal credit markets of 18th century France, Fontaine points out the morally ambiguous nature of the ‘usurious loans’ of street lenders of the urban economies, but also their indispensability as a survival strategy in the contexts of increasing urban migration and breakdown of traditional solidarity networks. Informal weekly loans therefore constituted an important coping mechanism for low-income city dwellers with no welfare institutions or access to cheap credit.

Screening of documentary on women and informal finance in South Africa. Photo: Ishmael Iswara

Several papers further illustrated the complex relationships between formal and informal financial institutions, and social and abstract dimensions of finance. In the development industry, informal savings groups are increasingly encouraged to form relationships with formal financial institutions. Examining data on over 3000 savings groups from 32 countries, Nakato, D’Espallier and Merslan found that while savings linkages with the formal sector were enhancing the financial performance of the groups, credit linkages tended to have a negative effect, reducing the savings per member and return on savings. Formal financial linkages may curb the social aspects of savings groups that are responsible for their resilience, and pose requirements on the payment cycles and group activities that are incompatible with their long-term sustainability. Policy-makers and institutions promoting financial inclusion should therefore carefully consider local savings contexts, livelihood activities, institutional patterns and cultural norms.

Drawing on ethnographic research in Paraguayan “micro-insurance” markets that target its most vulnerable citizens, Schuster suggested that while financial markets seek to convert diverse areas of life into objects of speculation, they have the paradoxical effect of expanding informal systems of risk management. Bähre showed how informal funeral societies in South Africa socialize and circulate money, both making it publicly visible as well as enabling participants to hide it from their families and extended networks. Arguing that financialization in South Africa has been connected to the attempts of the state to establish inclusive democracy, he showed how the informal groups of the ‘alternative economy’ have complex ties to the insurance companies and banks of the formal sector. Both social and non-social, abstract elements of solidarity converge in life insurance, with social networks intersecting with new bureaucratic organizations.

The spreading digital technologies have not reduced the importance of informal financial markets, rather introducing novel types of intermediation. Exploring the ongoing fintech disruption in Africa, Kouame and Kedir suggested that the combined efforts of formal and informal finance as well as financial technology could lead to improved self-employment or entrepreneurship among the adult population in Burkina Faso – a country with the fastest growing mobile money adoption in Africa.  Informal finance such as rotating savings-credit groups, however, maintain a clear lead in advancing women’s economic empowerment in the country. Drawing on advances in information and communication technologies, fintech initiatives in the Global South often build on interpersonal patterns of mutuality, argued Rodima-Taylor. Examining informal work and savings groups in East Africa that had emerged in the distant past for sharing agricultural labor, she explored the continued importance of such local informal ‘sharing economies’ in Africa in channeling money flows within proliferating fintech initiatives, while highlighting the relational and situated dimensions of the contemporary digital payment infrastructures.

Informal savings groups among the Kuria of Tarime highlands, Tanzania. Photo: Daivi Rodima-Taylor

Reflecting on the increasing movement of the Swedish financial sector towards cashlessness that accompanies the digital disruption, Peebles finds that the turn towards private payment infrastructures also poses fundamental challenges to state institutions. In an attempt to retain the national currency as a public good, the Swedish central bank has turned to plans to issue the world’s first national digital currency. Peebles suggests that national currencies exist as the outcome of both collaboration and competition between private and public banks, and the ongoing expansion of private currencies and payment methods poses novel questions and challenges to central banks everywhere.

Abbi Kedir presenting. Photo: Elise Demineur Reuterswärd

Further highlighting the importance of the material aspects of money and payment infrastructures, Fitzpatrick and McKeon argued that traditional Indo-Pacific ‘currencies’ such as Palauan bead money and Yapese stone money may offer important perspectives on modern financial systems. The manufacturing, value assignment, and transfer of these limestone disks and other exchange valuables could be seen as analogous to modern blockchain technology that tracks ownership and transactions in a transparent public ledger. These similarities demonstrate that the concept behind bitcoin and blockchain may have its roots in the ancient past.

The kinds of calculative and social dynamics that the digital ledger technologies introduce may also not be completely new. Desmedts pointed out that the contemporary crypto-space is heavily fragmented, with crypto-coins seen either as political flags by the early users, or alternative assets by later investors. Delineating key communities of crypto users, Desmedts related their beliefs to different conceptualizations of code and trust. He concluded that the new digital peer-to-peer currency systems still implied hierarchy and the importance of trust, highlighting the persistence of traditional dilemmas pertaining to money and payments.

The symposium thus provided a fertile venue for innovative interdisciplinary perspectives and debates on continuities and disruptions in informal credit markets, their intricate connections to formal finance and the state, and the role of technology and local agency in ongoing financial re-intermediation.