1. The formal sector i.e. the banks and the cooperatives need to engage more in the lending activities because of the disadvantages posed by the informal sector. 2. There is no organisation which supervises the credit activities of lenders in the informal sector. They can lend at whatever interest rate they want and there is no one to stop them from using unfair means to get their money back. 3. The high cost of borrowing discourages many people who wish to start an enterprise. It also significantly reduces the income of the borrower as much of the earnings go into repayment of the loan. 4. Borrowings at much cheap rates from the formal sector would therefore encourage higher incomes which would in turn lead to an increase in the amount of borrowings from the banks for various purposes. 5. An increase in borrowings would help people in growing crops, do business, set up small scale industries etc which would add to the development aspect of a country.