· Interpersonal financing remains a significant alternative to credit institutions.
· However, a number of players are calling for greater formalisation of funding.
Research based on a qualitative survey of small businesses in Senegal shows that the adoption of different financial practices can be based on an explicit comparison between banking services on the one hand and mobile transaction services on the other ([1] blog post “Mobile money: an alternative to bank accounts? Results of research carried out in Senegal.”). With regard more specifically to the use of substantial financing, the banking option is still described in the discussions as being unavoidable, although controversial, as can be seen from the criticisms levelled at it and at the banking institution as a whole. So-called “formal“ financing is often compared with ” informal “ financing, i.e. interpersonal financing within a network of close friends or acquaintances, the particularity of which is that it is usually non-commercial.
You’re working for the bank!
Pricing and flexibility
However, we must be careful not to conclude from this that the primary reason why people opt for interpersonal financing is that it is free. Indeed, although criticism of financial services frequently targets pricing practices, it does not only reflect the economic willingness of players to pay the price of the service, but also a moral stance. Pricing that is perceived as abusive feeds a much broader institutional distrust, aimed at “enriching“ the powerful at the expense of the rest of the population. One respondent said that she prefers to use her available cash for loans or donations to members of her community, rather than depositing it in her bank account. In doing so, she is competing with the role of banks and other lending institutions.
What’s more, the interest paid to the lending institution, whether microfinance institutions or conventional banks, is interpreted more as an undue payment to the lending institution concerned (“You’re working for the bank!”) than as the price of the time between the loan and repayment.
The social significance attached to banking services reflects the state of solidarity in Senegalese society. Whether it is the family or the various communities to which the players belong, such peer-to-peer financing remains a significant source of non-market alternatives to credit institutions. As well as often being free or virtually free, these forms of finance offer greater flexibility in their repayment terms and, above all, take into account the personal circumstances of each individual and the “unforeseen circumstances” that may arise in the course of business (crisis, illness, etc.). The relative failure of the various lending organizations to take these considerations into account makes them look like “ruthless” figures.
Interpersonal financing: between appreciation and criticism
However, while interpersonal financing is a valued option due to the flexibility offered by the mutual help network, it is also criticized. Some “unforeseen” expenses are the downside of solidarity relationships. The obligation to help members of the group in return generates a source of expenditure that is difficult to predict and complicates management and anticipation within the business.
What’s more, even though these solidarity practices are still widespread, the survey reveals that some players are calling for greater formalization of funding. This is due in particular to the decline in interpersonal guarantees linked to the lengthening of the chains of interdependence in which players are involved, leading to the increasing anonymization of economic relationships.
Involvement in interpersonal financing does not always result in stronger community ties; on the contrary, it puts them to the test. The implications of interpersonal lending arrangements on reputation and honour can gradually be experienced as a constraint or improper behaviour on the part of the borrower. Stakeholders are likely to seek to move away from this in favour of systems that are more legally robust and less subject to the contingency of interpersonal connections.
Conclusion
When small Senegalese ‘entrepreneurs’ talk, bank financing remains the unavoidable, but controversial, option for large sums. But in a context where interpersonal financing remains the most common alternative, the criticisms levelled against it could nevertheless indicate the emergence of a demand for credit formalisation, mainly for subjecting it to legal conventions and better regulation in a context of weakening interpersonal guarantees. From this point of view, the challenge for new credit players in Senegal, and more widely in Africa, is to offer financial services that, while extending some of the logic of interpersonal financing, meet the emerging demand for more formalisation.
Presentation of the field survey :
The survey is based on 45 interviews carried out in Dakar, in Saint-Louis and their regions over the 2021-2022 period, with small business owners and self-employed people, including craftsmen, shopkeepers, self-proclaimed “entrepreneurs” and service providers, in various sectors of activity -textile, food, electrical goods, catering, delivery, travel agencies, etc.
The 45 people surveyed included 16 women and 29 men, aged between 19 and 71.
None of the people interviewed comply with the accounting standards in force in the region, which puts their businesses in the informal sector according to the ANSD (national agency for statistics and demography in Senegal) criteria, even though most of them have taken steps to formalise their administrative procedures, i.e. national identification number and registration in the trade register.
The fieldwork was carried out thanks to the support and translation work of Mamadou Mountaga Toure and Fatoumata Ba.
Sources :
[1] ‘Mobile money: an alternative to bank accounts? Results of research conducted in Senegal.’ blog post
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