Question

EXPLAIN THE NEED FOR EXPANDING FORMAL SECTOR CREDIT ESPECIALLY WITH RESPECT TO POOR AND RURAL HOUSEHOLDS

Answer 1

note :- my English is not that good so if you do not understand my explanation please ignore it...
1) difference between formal sector and informal sector is in former sector source of money is from banks which are regulated by central bank of that particular country whereas in informal sector moneylenders, merchants, traders, local mom and pop shop owners are the one who lend money.
2) NEED OF EXPANDING FORMAL SECTOR -
a) formal sector is more organised and control by an regulating authority like central bank of country. it has stringent norms which keep control on them and supervise them for benefit of whole economy of country (which means basically benefit of its people), norms set limit within which banks can charge interest rates against loans
b) informal sector is not well organised and money lenders harass poor and uneducated rural people to recover money from them. they levy more interest rate than formal sector as they don't have any regulating authority above them to control this loots...
c) poor and rural people are always afraid of documentation and other procedures which banks follows as the amount they required is very less as compared to documents banks demand against it. money lenders are most
of the time lives in their locality so they feel more trustworthy than banks so villagers always give first preference to informal sector.
d) but as we know to grow economy each and every cent of money should be tracked and calculated in GDP of country... unorganised money market is running under the table so whatever transaction they are doing is like as black money...and this market is unhealthy for countries economy and if economy is not growing standard of living of its citizens will not grow...
this is very basic explanation which I know...

Answer 2

Answer:

We need to expand formal sources of credit because:

Low interest rate.

Leagel procedure.

To reduce the dominence of moneylend.,landlords,etc.who take advantage of rural people in all possible ways.

The illiterate people can easily be cheated by the moneylend.,landlords,etc.

to reduce dependence of people especially poor people on informal sources of credit.

formal sources lend loans at less interest rate than informal sources.

so that people can get loans at cheap and affordable rates.

it will further provide an outlet for small producers to grow.