ABSTRACT
In the wake of the Millennium Development Goals (MDGs), improving access to financial services in developing countries has become a major policy objective, as it is widely believed that economic growth can be accelerated substantially by both deepening and widening outreach of financial services (Chandrasekhar 2004; Honohan 2006; Demirgüf-Kunt et al. 2008; Haq 2008). Financial services outreach is associated with giving access to capital and providing job opportunities to the poor. Despite efforts to provide access to financial services, it has often been argued that both formal and informal sectors in the developing world have failed the people in rural communities (Rao 1980; Chowdhury 2008), primarily because limited access to financial services in the developing world is one of the main obstacles to income generation and social protection (Beck et al. 2005; Ghalib and Hailu 2008). Out of the main sources of credit available to the rural poor, non-institutional or informal sources that include moneylenders, landlords, traders, friends and relatives, etc. are most common means. Typical borrowers in the unorganized credit market have no, or very limited access to the organized market (Rao 1980; Gupta and Chaudhuri 1997) and ultimately resort to private moneylenders in order to finance their immediate needs.
