Network effects in credit market access: Evidence from Istanbul

Many households in developing countries often have difficulty in smoothing consumption through formal credit channels. In turn, many rely on social (informal) networks. While this topic has been explored extensively in the literature on rural areas, the urban scene remains largely uninvestigated. This paper analyzes data from an exclusively-designed survey implemented in Istanbul, Turkey, and shows that households utilize both money transfers from social (informal) networks, and credit from formal institutions when they are experiencing cash shortages. Additionally, it is observed that some households utilize their social networks to facilitate easy and/or favorable access to formal credit, which has inevitable consequences for the overall efficiency and equity of access to financial services.