The Role of Family Networks and Gender on Borrowing Behavior in Indonesia

In this paper, we use the nationally representative Indonesian Family Life Survey dataset (IFLS-3), to examine if access to loans from informal networks such as family and friends influences borrowing behavior in formal credit markets. Our empirical results show that there is a gender dimension to borrowing behavior, with females being more likely to receive loans from family members. However, access to loans from family does not lower their propensity to seek out formal credit. For males, access to family loans does not affect borrowing propensity but it increases the size of borrowing from the formal sector. From a policy perspective, our results indicate that education plays an important role in improving an individual's access to financial credit markets and reducing their dependence on internal networks.