Informal Banking, Trust and Mutual Reciprocity

Abstract

Poor people in the underdeveloped countries cannot live without credit. Most of them are, however, outside the ambit of formal credit system. They do not possess the requited parameters that can qualify them as debtors in the formal market. In this chapter, we have tried to gauge the patterns and factors that rule the informal credit market in India. The truth underneath the informal market is that people have no way but to depend on mutual trust when taking loan. Once trust is established, the advantages of the informal market (accessibility, flexibility and less stringent requirements for collateral) aid in its flourishment. Many of these informal sources are a part and parcel of their lives. In this chapter, not only the trends in rural credit market are deciphered but also the cause and extent of informality are also unearthed. In order to check the broader trend in the country setup, two case studies from the remote rural areas of West Bengal have been incorporated.