Introduction

Few students of development concerned themselves with the financial activities occurring beyond the fringe of formal financial markets. Conventional wisdom held that these endeavors were comprised of exploitive loans from usurious moneylenders and of benign consumption credits lent by friends. Moralists, politicians and policy makers occasionally fretted about informal lending, and these concerns usually had a negative tone: preaching against its evils, trying to regulate it, or developing credit programs aimed at substituting for it. Increased interest in the private sector and a clearer perception of the difficulties in many formal credit programs have prompted many individuals to reevaluate old views about informal finance. Only an efficient formal financial system can provide the numerous large and long-term loans needed to promote major investments. Only formal finance can provide the security and liquidity that are needed to mobilize the large volumes of deposits required to make low income countries self sufficient in their capital formation efforts.