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This paper investigates the relationship between trust and guilt amongst formal and informal lender-borrower relationships employing game theory model from 1600 farm households surveyed in Shaanxi, Henan and Gansu provinces in China between October 2007 and October 2008.The paper provides some theoretical propositions related to trust based lending versus collateral based lending.The theoretical proposition is that the poor are trustworthy and for the most part should have access to formal credit, even if they lack collateral.The results suggest that left to their own devices and moral conscience, farmers, especially poor farmers, would not renege on an unsecured loan obligation as a matter of course.Whether it be culture or conscience the combined strength of trust and guilt are sufficient to explain the overwhelming activity of informal lending between friends and relatives.