This study attempts to investigate the effect of both formal and informal financing on the growth of firms while controlling for different variables such as size, age, competitors and ownership of the firms. The study uses survey of 208 firms from Islampor cottage industry Swat, KP. The data for this study is collected through Focus Group Discussions (FGD’s) and questionnaires. The results are estimated by using robust regression. The overall results show that the impact ofinformal financing on the growth of the firms is higher than formal financing in Islampor cottage industry.However, formal financing is positively related with the growth of large firms in case of Islampor cottage industry.Co-financing, where the ratio of Informal is greater than formal financing,positively affects the growth of the firm in Islampor Industry. Supervisor:- Dr. Anwar Shah