The informal credit sector is large in the developing world and serves the needs of many.
Financial institutions operate outside the law and usually without legal status.
They range from self-help groups to rotating savings and credit associations to informal moneylenders.
They include credit unions, cooperatives, pawnshops, loan sharks, moneychangers, etc.
Informal financial institutions provide loans to members as well as nonmembers for consumption purposes as well as for working capital for small businesses.
The terms of lending are flexible, but interest rates are high.
Final answer :
Examples of the informal sector that can be used for credit are as follows :
Moneylenders:
These are third-party individuals who offer loans to individuals.
They can be found on the streets and also through word of mouth.
The borrower is usually asked to sign a document to ensure that they will pay back the loaned money.
Family and Friends :
Informal credit can be obtained through friends and family members.
In most cases, such arrangements involve little to no paperwork and have few rules beyond a promise to repay the money.
Such informal lending is most common among people who know one another well.
For example, This type of lending may be used when a person needs a small amount of money to pay for an emergency expense, such as an unexpected car repair.