Question

Credit
activities of
informal secter should be discourage .support
the statement ?
​

Answer 1

Credit activities of informal sector should be discouraged as :

1. Moneylenders charge a very high interest rates on the loans extended.

2. They use unfair means to get their money back.eg, employ musclemen.

3. May force the labourers to contribute Begar(work without payment)

4. They are unsupervised as RBI exercises supervision on formal sources of credit.

5. No documentation requirement making one prone to increasing debt and debt trap as data can be easily manipulated.

Thus, loan activities need to be limited by increasing lending activities of banks and cooperatives.