Exploring Rationale of Existence of Informal Finance in Contemporary Indian Society

Abstract

India is a country where majority of population is engaged in the unorganized sector. Unorganized sector is recognized by the acute absence of security in terms of work, working conditions, wage rate, and amenities to be provided to the workers. Thus, a significant proportion of Indian workforce is far away from the guaranteed earnings and social security measures. On the other hand, cost of living is getting very costly day by day. Therefore, it has become very difficult for the common masses to get livelihood to cover the day to day cost of living and making enough provisions for the future uncertainties. Informal finance is the last resort for the poor and marginalized sections to address their day to day financial issues as when arise. Formal finance has its own procedural and systematic limitations. Furthermore, its outreach and volume are limited that is inadequate to cater the vast financial needs of the most populous and diverse country. Therefore, it is inaccessible to the common masses. That is why informal finance has become an integral part of Indian society. And it has been a very popular source of fund among the marginalized people, and micro and small entrepreneurs. Informal finance has also its strengths and weaknesses that suit the under developed and developing economies. As weak financial literacy, skewed development and expansion of formal financial institution, widespread poverty and agrarian society are hallmarks of emerging economies of the world that pave the way for expansion and outreach of informal finance across society.