This paper constructs a rural speci¯c model to investigate how inequalitycan a®ect growth when moral hazard problem exists in credit markets. Banks rely on collateral, whereas the informal institutions directly yet costly monitor borrowers. Since both are unfavorable to certain segments of the agents,coexistence of these two could be growth enhancing. The dynamic rise and fall of them are implied. Further, the negative relationship between inequality and growth is discovered, using cross-province data in rural China. Interestingly,the policy dummy variable showing the attitude towards the informal institutions presents a positive sign, which supports our model empirically.