Determinants of the conditional probability that a household has informal loans given liquidity constraints regarding access to credit banking channels

We use a semiparametric bivariate probit model to explore the determinants of the conditional probability that a household has informal loans given objective or subjective liquidity constraints regarding access to credit through banking channels. In our empirical study, we use Italian microdata on household income and wealth covering the 1995-2014 period. Our results emphasize that the most important trigger factors influencing the conditional probability of interest are debts in the form of both mortgage(s) and loan(s) and the unemployment status of the household head. Other trigger factors include a young age of the household head, residence in a large municipality, no home ownership (paying rent or free use), an equivalent income lower than 10,000 Euro, and a ratio of liquid assets to net annual income very close to zero. Understanding the factors associated with a household's probability of taking out informal loans is important to gain knowledge about a phenomenon that is not tracked by official statistics. This knowledge is also useful to practitioners and policy-makers interested in providing new tailored financial services or solutions for reducing poverty risk.