Question

where do poor households rel
y on informal sources of credit

Answer 1

(i) Banks are not present everywhere in rural India.

(ii) Even when they are present, getting a loan from a bank is much more difficult than taking a loan from informal sources.

(iii) Bank loans require proper documents and a collateral. Absence of collateral is one of the major reasons which prevents the poor from getting bank lo

(iv) Informal lenders like moneylenders, know the borrower personally and hence, are often willing to give a loan without a collateral.

(v) The borrowers can, if necessary, approach the moneylender even without repaying their earlier lo

(vi) However, the moneylenders charge very high rates of interest keep no records of the transactions and harass the poor borrowers.

Answer 2

For the large number of poor people in our country, it becomes difficult to avail loans from formal sources of credit, such as the Bank, etc. due to the lack of proper Collateral, documentation, etc. As a result, they are bound to take the help of informal sources of credit, who charge high interest rates, even if they usually do not require Collateral and documentation...

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