Question

most of the poor households are still dependent on informal sources of credit explain the statement

Answer 1

In poor households especially in rural areas most of the people are dependdent on informal sources of credit because:-

1. Formal sources of credit such as banks ask for a collateral that can be taken from the borrower if they fail to repay the loan.

2. Usually poor households do not have any collateral to give to the banks.

3. In many rural areas there are no banks so the people have no choice but to take loans from informal sources

4. The government should set up banks in rural areas to help avoid taking loan from informal sources.

5. Informal sources charge higher loans and usually poor people fall into a debt trap

6. In India many farmers commit sucide because of falling in a debt trap

Answer 2

Most of the poor households are still dependent on informal sources of credit. The reasons are as follows:-

• People from economically unstable backgrounds lack the education to find quality jobs that are high paying.
• Informal sources of income mean the income which does not generate from a formal job or business that is regulated by a body or the government.
• People from poor backgrounds usually find jobs that are in the unorganized sector.
• These jobs do not provide any extra benefits and perks that are usually provided by corporate sector jobs for in government jobs.
• Coming to taking loans banks do not give loans to people who do not show collateral for taking the loans.
• Since poor people have no collateral to show they do not get loans from the bank.
• Hence, they are dependent on informal sources of credit.