ABSTRACT
Credit markets are among the most important institutions in a modern economy, affecting wealth distribution, aggregate output, and possibly the growth rate of GDP. In most developing countries today, the efficient functioning of such markets is severely hampered by the problems of a lack of collateralizable assets (which precludes entry into the formal side of the market for loans) and loan enforcement in informal credit markets. As a result and as revealed in the chapter on finance, the use of other sources of loan such as trade credits have been widespread among African manufacturing firms. These types of semi-formal contractual practices give rise to the issue of enforceability, which has attracted a lot of interest in both theory and practice among studies of firms in developed countries.
