Review any three merits and any two demerits of 'formal sector of credit' in India.
Answers
MERITS
* They give very low interest rate . This reduces the chance of the borrower to be trapped in a debt trap.
*They usually have favorable terms of credit and are supervised by various organisations which makes the possibility of the borrower to be subjected to blackmail and bad treatment almost zero.
* In India , RBI (Reserve Bank of India) ensures that loan is not only given to the profit-making rich people but also to small cultivators , small-scale industries , small borrowers, etc....
DE-MERITS
* Most poor people don't get loans from this source due to absence of collateral.
*Terms of credit cannot be altered even in the slightest manner after the loan is issued. But in Informal sources, such alteration can occur.
HOPE IT HELPS ^-^
Answer
Merits and Demerits of Formal Sectors of Credit
Merits
(i) Helps to meet the working capital needs of production.
(ii) Helps in ongoing expenses of production.
(iii) Helps in completing production on time.
(iv) Helps in increasing earnings.
(v) Low interest rates.
(vi) Easy access of loans to small cultivators and small scale industries.
Demerits
(i) Difficulty in obtaining loans.
(ii) Collateral issues.
(iii) Documentation could be a problematic issue for few.
(iv) Lack of credibility in rural areas
Hope it helps