Implications of informal credit for policy development in India for building inclusive financial sectors

Shaheel Rafique
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Shaheel Rafique: Rural Development Consultant, North-Eastern Development Finance Corporation Limited, Assam, India

Asia-Pacific Development Journal, 2006, vol. 13, issue 1, 101-127

Abstract: This paper examines the characteristics of the informal credit market in India by giving a historical overview of that market. It also provides a microlevel analysis of the role of informal credit, with the help of a case study of a migrant professional moneylender in an Indian village. India has a long history of professional moneylending. This paper is part of an ethnographic study which fills a research gap in the study of the informal credit market in India. This paper addresses two main issues. The first is the place of a Kabuliwallah, (professional moneylender in the village financial system) and the complementarities with other intermediaries in a village, as well as other dimensions of that business in a district. The second is the implications of the research for formal financial institutions in India. Data from the account books of a Kabuliwallah show that he was complementing the financial services provided by the formal credit institutions operating in the same geographical area. It is a unique business approach, with flexible contractual terms and conditions. The study concludes that, although the informal sector is acknowledged in policy, it is not clear as to how the formal sector should operate in the presence of the informal sector, where the activities of a professional moneylender is a good example. Keeping in view the findings presented, the paper concludes that the adoption of a decentralized process for the formulation of a financial intermediation strategy is required for building an inclusive formal financial sector.

Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:unt:jnapdj:v:13:y:2006:i:1:p:101-127

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