Question

”Poor households still depend on informal sources of credit." Support the statement with examples

Answer 1

 (a) Banks are not present everywhere in rural India, whereas informal sources are easily available in all villages.
(b) Getting a loan from a bank is much more difficult for poor people than taking a loan from the informal resources, because bank loans requireproper documents and collateral.
(c) Moneylenders provide loan to the poor people without any collateral.
(d) Formal sources provide loan only for productive purposes, whereas the informal sources provide credit for productive and non-productive purposes
(e) Other informal sources of credit are friends and relatives, or traders and landlords, who know the borrowers personally and therefore do notdemand collateral.

Answer 2

Answer:

Because bank loans demand adequate documentation and collateral, which impoverished households seldom have, they continue to rely on informal sources of credit.

Explanation:

• Moneylenders and other informal lenders are frequently prepared to provide loans without collateral since they are familiar with the borrowers directly.
• Rural residents encounter difficulties receiving bank loans due to a lack of banks in their region, difficulties with documentation, and the lack of collateral.
• However, rural residents can obtain simple loans from wealthy households through informal channels.
• In metropolitan regions, 85 percent of loans obtained by low-income households come from unofficial sources.

Employees, money lenders, relatives, and friends are examples of informal sources of credit.

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