INFORMAL MANAGEMENT OF COMMERCIAL DISPUTES AMONG SMALL ENTREPRENEURS IN HYDERABAD DISTRICT, PAKISTAN

Abstract

Small entrepreneurs in Pakistan trade based on oral agreements and credit, and do not resort to formal courts to resolve disputes. This study documents the process of small entrepreneurs' commercial disputes from breach to resolution or breakdown in the Hyderabad District of Sindh. It is based on 20 semi-structured interviews. Thirteen participants had distinct businesses, one was a key informant from a traders' association, and six were interviewed separately but analysed together as a single account because they work in the same market. Relational contract theory, legal pluralism, and informal institutional theory are used to guide the analysis. First, the owners attempted to resolve the dispute directly with the other party in 12 of the 13 owner accounts, and three disputes were resolved at that point. When the other party was not available or not interested, the owners resorted to a market union or association, elders, or mutual contacts. The first third party was not successful in 6 of the 10 cases that involved a third party. However, in a number of instances, forums proved effective when the other party was still a part of the market or community under the control of the third party, such as jewellers and bangle traders. In contrast, enforcement was weaker in the cases where the counterparties could exit or benefit from power coming from outside. Six business relationships were terminated and one owner left the business. None of these seven recovered the full amount they deemed to be owed, and some recovered only part. Owners more often took losses due to reputation concerns than defaulters paid because of these concerns. This study is an exploratory account of informal dispute management among small entrepreneurs in Hyderabad, Sindh. It suggests that informal enforcement depends on whether the other party remains in the market controlled by the forum, a pattern that larger samples should test.