y A Typology of Informal Credit Suppliers: Friends, Neighbours and Relatives

A Typology of Informal Credit Suppliers:
Friends, Neighbours and Relatives

Friends, Neighbours and Relatives
"Love thy Neighbour: Friends, Neighbours and Relatives as Credit Suppliers"


riends, relatives and neighbours as lenders and borrowers represent the simplest form of an informal credit transaction. An individual in need of finance approaches a friend, relative or neighbour and requests for funds.

The fact that both lender and borrower are well known to each other, dispenses the need for most, if not all, traditional terms and conditions for a transaction: ensuring repayability or credit worthiness, fixed and predetermined repayment amounts and schedules, collateral and guarantees etc. Such lenders are of course, single individual who provide loans on a need-based manner.

Credit given by them is loosely transacted on a one-to-one basis, without the involvement of any third parties. It is considered a favour' made for a future reciprocation. There is close physical/psychological proximity between the lender and borrower.

Literature Review of Friends, Relatives and Neighbours

Issue Discussion References
Advantages of friends, relatives and neighbours
  • Terms and conditions imposed on the borrower are very few, if none at all - usually with no interest payments or regular repayment schedules and transaction records are not made.
  • While loans from friends, relatives and neighbours imply an obligation, it is aligned along traditional community links and personal
Srinivas, 1991: 103
Disadvantages of friends, relatives and neighbours
  • The supply of loans is irregular and not always available. That is, only when surplus funds are available with the individual or only when requested by a close friend/relative/neighbour, is the loan made.
Key Implications of friends, relatives and neighbours:
  • Simple terms and conditions that is understood by both lender and borrower - reduced paperwork, less procedural needs for establishing credit worthiness etc.
  • Respect for existing community linkages, organizing patterns and networks in designing savings and credit programmes. This includes incorporating existing personal information and knowledge available at the community level into such programmes.


Friends and Neighbours

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