Financial or credit co-operatives are a link between institutional and informal credit agencies.  The purpose of the creation of such co-operatives was to expand rural credit and to displace informal finance in rural India. Today, the need of these financial services is very important for rural areas, as they can reach the small farmers easily, entail group liability and so reduce the risks of loan defaulter.

This article examines, (i) the nature and extent of these financial co-operatives in rural areas and how they affect the lending process of rural India both institutional and non-institutional credit (ii) It tries to evaluate the factors like, how far these co-operatives were successful in mobilizing the savings of the villagers and lower the risks of borrowers’ incentive to pay. 

KEYWORDS: co-operatives, financial services, lending process, economic development