Low-income individuals in developing economies face barriers that limit access to banking. In some countries, a common requisite of banks is that would-be borrowers must have official proof of income. However, this requirement excludes from the banking system all the informal households whose members work in activities that are not registered with the government, and who, due to the nature of their occupations, lack income documents. A case in point is that of Mexico. In this middle-income country, informal households represent more than half the population.
In Mexico, banks have been hesitant to lend to informal clients since they are considered riskier and less profitable. Nevertheless, and although they find it difficult to obtain credit from traditional banks, informal households tend to be active borrowers with alternative suppliers. Informal borrowers rely heavily on loans from relatives and friends, and on more expensive credit suppliers, such as pawn shops and moneylenders.