This study has investigated into the co-existence of the formal and informal sources of credit and their relative contribution in lending. By using one year primary data from Mirzapur and Varanasi districts in eastern Uttar Prodesh, India, the study revealed that the formal sector accept a wide variety of tangible and intangible collaterals. The informal sector was found to have emphasized land as collateral as compared to the formal sector. The poor borrower rely more on informal lenders due to the difficulty in accessibility to formal sector. The informal lenders exploit the borrowers by charging higher rates of interest.