Links between Institutional and Non-institutional Financial Sectors

The general bias of policy in developing countries ranges from studied neglect to active hostility towards the non-institutional sector. This seems misconceived considering that the size and persistence of this sector testifies to its inherent strength and economic rationale. Attempts to formalize the informal sector are liable to fail because its very rationale derives from its informality. Excessive regulation of the informal sector is more likely to result in its disappearence without providing for adequate institutional substitutes. The appropriate strategy should therefore be for the institutional sector to take on more of the desirable features of the informal sector, particularly in relation to the small saver and small borrower. Some of the elements of such a programme would be as follows:

Chandavarkar, A.G. (1985). "Non-Institutional Financial Sector in Developing Countries". Savings and Development, Volume IX, Number 2, pp. 129-141.

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