Question

How can rural poor be encouraged to take loans from the formal sectors of credit? Explain.

Answer 1

Answer:

Rural poor will always depend on the informal source of credit due to lack of awareness and ease of availability. When the credit is available for the emergency purpose, he will borrow from the informal sources. There are steps that can bring awareness to the rural poor and encourage them to take loans from the formal sectors. The major steps are discussed below:

• Bring awareness

Make aware to rural poor that formal source of credit can be obtained with much lower interest rate than the informal sources. They must also be aware of the debt trap they are facing, and the exploitation done the informal source lenders.

• Cooperatives

Establishing the cooperative banks in all the rural areas and that will help the rural poor to get rid of the informal source lenders. The employees in the bank must also be from an educated rural person, therefore, he will be aware of the person who is borrowing.

• SHGs

Promoting a greater number of Self Help Groups (SHGs) which will promote the rural poor to save the money by depositing it weekly and when the SHGs are registered, they will be aware of the formal source of credit. Members of the SHGs should also take an initiative to bring awareness about the formal source of credit throughout the village.

• Imposing law

The law must be enacted to control the informal sources of credit via money lenders. Those money lenders who lend money for the interest must be punished under the law. Moreover, the loan accepters should also be punished so that they will be of the law that there is a punishment or penalty for lending a loan from the money lender for an interest.

• Terms of credit

The interest rate, collateral, and documents required and mode of repayment altogether comprising is called as terms of credit. The terms of credit for advancing a loan from the banks should not be rigid. The documents required must be such that the rural poor have afforded to it.

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