Chit Funds and Informal Credit in India
What Informal Credit Is
Much of India's lending happens outside banks, through moneylenders, chit funds, traders and friends, filling gaps left by the formal system.
Informal credit is borrowing and lending outside regulated banks and finance companies.
Who lends
Moneylenders, pawnbrokers, landlords, traders, employers, relatives and chit groups all lend.
Why people use it
It is fast, needs few documents and relies on personal trust. A borrower can get cash the same day.
The cost
Speed and flexibility often come with high interest rates and less protection.
A family needs cash for a hospital bill at night and borrows from a local lender who knows them.
Some is fair and mutually helpful; some is not.
- Informal credit is outside banks.
- It is quick and trust-based.
- It can be costly.
- Both fair and exploitative forms exist.
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