While the role of rural informal industrial clusters in generating income and employment opportunities for the rural poor is widely acknowledged, studies seldom examine the growth process of informal industries in developing countries. Particularly, studies seldom examine why many of the informal industrial clusters in developing countries perform poorly relative to their growth potential. Using primary data collected from entrepreneurs and workers from an informal hosiery cluster in a northern district in Bangladesh, this paper explains the factors that influence the development process of informal industries in rural areas in developing countries. The paper empirically identifies that entrepreneurs’ human capital acquired through formal education critically determines product quality upgrading efforts, formal credit accessibility by the entrepreneurs, and the performance of enterprises.