Study of Informal Financial Markets

Abstract

It is believed that a substantial part of financial transactions in India occurs outside the regulated formal financial sector comprising banks, insurance firms, NBFCs and microfinance institutions. A variety products and services are offered by entities in the informal sector for mobilizing savings from households, meeting their need for money and helping them remit money. Understanding why such informal markets exist and how these markets function will provide basis for appropriate policy response. The research would attempt to deepen the understanding about financial products and services offered by the informal markets for (i) mobilizing savings, (ii) lending money, and (iii) transferring funds. The research will use an empirical approach of enquiry based on interaction with providers and users of products and services in the informal markets. The analysis will use theoretical frameworks and concepts available in finance and economics to understand the economics of and the motivations for the transactions.