The Pandemonics of Informal Credit Markets

Credit markets are at the core of any economic crisis, and informal loans are largely understudied. We collect a dataset on an online informal lending community to study the impact that the 2020 pandemic crisis had on informal credit markets. We find that these informal loans are short duration, expensive and that borrowers and lenders exhibit some sense of community. Our results suggest that the financial hardship imposed by stay at home orders is perceived as persistent, and borrowers expect lower future income, hence reducing loan demand. Moreover, loans directly associated with the pandemic are more likely to be transacted by newcomers to this market, and mentioning the pandemic in a loan request lowers the chance that it originates a loan. The absence of an increase of violations of community rules and the reduction in promised repayment time highlights the importance of informal credit communities in hard times.