ABSTRACT
Finance exists because of heterogeneity among firms and individuals and because of the specialization and trade that ensues from the differences. This, in turn, results in a variety of financial needs that are partly met by a multiplicity of informal arrangements. Informal forms of lending—particularly moneylenders—are stereotyped as being evil in many cultures. Poets, prophets, playwrights, and politicians have pointed accusing fingers at informal lenders and questioned the comfort of their after-life since the beginning of recorded history. In many countries various types of organizations provide loans or accept deposits that are only regulated slightly by a government entity. Nongovernmental organizations may be providing financial services with tacit government approval but with only slight regulation. The variety of informal financial arrangements is evidence of the broad range of financial services demanded by people in low-income countries. Sustainable financial markets that operate efficiently and equitably are vital ingredients in rural development.
