formal and informal sector credit in India.?
Answers
Explanation:
FORMAL SECTOR:
Among the formal sectors from banks and cooperatives.
The Reserve Banks of India supervise the functioning of formal sources of loans.
For instance, we have s banks maintain a minimum cash out of the deposits they receive.
The RBI monitors the banks in actual maintaining cash balance.Similarly, the RBI sees that t give loans not just businesses and traders but also cultivators.
Small scale industry borrowers etc.
Periodically, banks have information to the RBI on how are lending, to whom, at what interest rate, etc.This sector changes very low interest.
INFORMAL SECTOR:
There is no supervises the credit activities of lenders in the informal sector. They can lend at whatever interest rate they choose. There is no one to stop from using unfair means to get their mone back. Compared to the formal lenders, most of the informal lenders higher interest on loans.
Thus, the cost of informal loans is much higher. Higher cost of borrow larger part of the earnings of the borrow is used to repay the loan. Hence, borrowers have less income left for themselves.In certain cases, the high interest of borrowing can mean that the amou be repaid is greater than the income o borrower.This could lead to increasing debt a debt trap.
For these rea cooperative societies need to lend more.This would lead to higher incomes and many people could then borrow cheaply for a variety of needs.They could grow crops, do set up small-scale industries etc. They could set up new trade in goods. Cheap and affordable credit is crucial for the country’s development.