Informal credit markets are still important in developing countries. Despite an increase in supply of formal credit in rural areas, informal lenders remain the dominant source of credit for the poorest households. Improvements in productivity are important in a development process. Productive investment requires funding and the access to credit is crucial for this purpose. Credit might also be a mean tide over bad times caused by sudden illness or an upcoming wedding for poor individuals.

This thesis studies the informal credit market in Nepal. In 2004 Nepal was ranked as number 140 out of 177 countries by the human development index (HDI) (Human Development Report, 2004). In 2002 the gross domestic product (GDP) per capita was only USD 1370. Nepal is one of the least developed countries in Asia.

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