ABSTRACT
Research shows informal finance is more complicated and heterogeneous than was thought to be the case 30 years ago. While a majority of research done on informal finance continues to focus on rural areas, recent studies sponsored by the Asian Development Bank in India, Bangladesh, and the Philippines show informal finance is widespread in urban areas. Over the years policymakers, especially in South Asia, have been concerned about measuring the relative importance of informal finance. Formal finance usually handles larger and longer-term transactions that are often quite impersonal. Academics, rightly or wrongly, have become generally more positive about informal finance than have politicians. Widespread group savings and credit arrangements are one of the most surprising findings about informal finance. In most cases, formal finance is transacted in the office of the financial intermediary, which imposes additional transaction costs on clients.
