able to obtain loans. Table 3a presents indicators of these three participation outcomes, differentiating between formal and informal loans. Table 3b presents indicators of the participation outcomes described in Figure 1.

The survey data shows that the low participation rates in loan markets can be partially attributed to limited demand for loans. We find that the proportion of economic agents that do not demand loans is rather extensive, or conversely the demand for loans is limited. As shown in Table 3a and Table 3b, about 53 percent of microentrepreneurs, 57 percent of farmers, 49 percent of nonagricultural enterprises, and 61 percent of agricultural enterprises demand loans. Excluding microentrepreneurs, economic agents report a higher demand for formal loans than for informal ones. Furthermore, those in the agricultural sector (farmers and agricultural enterprises) are more likely to demand loans than their counterparts in the nonagricultural sector.

Nevertheless, the incidence of credit constraints is pervasive across Mexico, especially among individual entrepreneurs. About 37 percent of microentrepreneurs, 41 percent of farmers, 19 percent of nonagricultural enterprises, and 21 percent of agricultural enterprises are credit constrained from both formal and informal lenders. The extent of credit constraints among individual entrepreneurs doubled that of enterprises. This greater incidence among individual entrepreneurs may result from the perception of lenders of more risks or higher transaction costs associated with providing small loans.<sup>12</sup> As shown in Table 3a, for individual entrepreneurs, the incidence of credit constraints is higher from formal lenders than from informal lenders. However, when examining the incidence of credit constraints across all types of lenders, we find that the degree of credit constraints is fairly homogenous across types of lenders with friends and relatives being the only exception. In the case of enterprises, the degree of credit constraints is higher for informal lenders than for formal ones. We observe that the degree of credit constraints for enterprises varies by type of lender. For example, enterprises appear to be the least constrained from private banks but the most constrained from development banks and nonbank intermediaries (See Table 3b).

Credit-constrained agents have an unmet demand for loans because the loan contract offered by formal and informal lenders do not match their needs. As shown in Table 4, credit-constrained individual entrepreneurs are unwilling to request loans mainly because of inadequate amounts and maturities (42 percent) and high transaction costs (35 percent). High interest and fees deter only 1.5 percent of creditconstrained individual entrepreneurs from requesting loans. Enterprises are more concerned with high interest rates (23 percent) and high transaction costs (19 percent) than with inadequate maturities and amounts (9 percent).

Insufficient information about loan application procedures deters many credit-constrained agents from requesting loans: about 27 percent of individual entrepreneurs and 18 percent of enterprises. This suggests that lenders are not marketing their products to rural agents or that lenders are not located close enough to rural agents.

However, many other rural agents consider that they would not be considered creditworthy by lenders. The perception that their loan application will be rejected inhibits about 25 percent of individual entrepreneurs and 22 percent of enterprises from requesting loans. The percentage of credit-constrained

> expected, the percent of rejected applications to private banks for individual entrepreneurs is much larger than that for enterprises. As a percent of loan applicants, we observe 33 percent of rejected applications for both farmers and microentrepreneurs, while only 10 percent and 4 percent of nonagricultural and agricultural registered enterprises had their loan applications rejected.

> 12 This indicates that the interest rates required to cover credit risk and transaction costs does not clear the market.

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