Informal local governance institutions (ILGIs) are prevalent at the village level in rural India. Generally perceived by urban Indians to be ‘oppressive’, ILGIs also have progressive features and often perform a range of useful collective functions at the village level. Instead of fading away in the face of modernity, ILGIs have found ways to interact, often in a positive manner, with the newer, elected local government institutions, the Grama Panchayats. Based on field research in Karnataka state, this article tries to present a more holistic picture of ILGIs, including their role in village governance and service delivery; the ways in which they interact with Grama Panchayats, and the implications of their existence and role for local democracy. It also presents a tentative theoretical framework towards explaining why ILGIs in Karnataka particularly, and in India generally, seem to be less repressive, more functional and more likely to survive than in some other countries of the South.