Question

"poor households still largely dependent on informal sources of credits to meet their neeeds'" why does this happen?

Answer 1

1. Banks are not present everywhere in rural India, whereas the informal sources are easily available in all the villages.
2. Getting a loan from a bank is much difficult than taking a loan from the informal resources because bank loans require proper documents and collateral. Most of the poor people don't possess anything to offer as collateral.
3. Moneylenders provide loan to the poor people without any collateral.
4. The formal sources provide loan only for productive purposes, whereas the informal sources provide credit for productive and non-productive purposes.
5.The methods of business of the formal sources are very complex, whereas the informal resources have a very simple way of business.
Hope this helps you !

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.