Few studies have researched on informal lending among close acquaintances in rural areas of developing countries, even though it is constitutes a substantial part of informal lending and borrowing. In the literature, risk sharing is given as important explanations. However, a growing body of evidence suggests that individuals are also strongly motivated by social preferences such as altruism, trust, fairness, and reciprocity. The primary contribution of this thesis is to investigate fairness and reciprocity as important motives underlying informal financial transactions among relatives and friends. Evidence from China and India suggests that social preferences can be advanced as important motives in informal financial transactions in social networks.