Question

Most of the poor households are still dependent on informal source of credit'. Explain.

Answer 1

1. Banks are not present everywhere in rural areas.
2. Even when they are present getting a loan from a bank is much more difficult than taking a loan from informal sector.
3. Informal and like money lenders know the borrower personally and hence are often willing to give a loan without a collateral.

Answer 2

Answer:

Poor households are still dependent on informal sources of credit due to the following reasons -

• Banks are not present everywhere in rural India. Even when they are present, getting  loan from bank is much more difficult than taking a loan from informal sources.
• Bank loans require proper documents and collateral which poor people in India cannot produce to the bank.
• Informal lenders such as moneylenders know the borrowers personally and hence are often wiling to give a loan without collateral.
• The borrowers can approach the moneylenders even without repaying their previous loans.
• Banks do not sanction any loan to the borrowers if they have not cleared the previous loans.