Question

Why do banks and cooperative societies need to lend more? Explain.

Answer 1

Lending by banks and cooperative societies are highly useful for the average income workers especially farmers. This is due to

• Farmers depend only on their crops and their income is only received from the crops, making them poor and in need of credit
• For the need of more credit, farmers depend on non-reliable resources like local moneylenders, who charge more interest and uses other deceiving factors to manipulate them.
• More credit in rural areas contribute indirectly to more development  
• More credit will also fewer expenses in the cost of production
• The regulation and control of RBI over these banks and cooperatives could ensure safe and fair transactions, thereby providing a chance to the government to support farmers .

To know more about banks and cooperative society

Why is it necessary for the banks and cooperative society to increase their lending facilities in rural areas ?explain

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Explain any three reasons for the banks and cooperative societies to increase their landing facilities in rural areas​

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Answer 2

Question: Why do banks and cooperative societies need to lend more?

<or>

Why do we need to expand formal sources of credit in India?

<or>

Describe the bad effects of informal sources of credit on borrowers. In situations with high risks, credit might create further problems for the borrowers. Explain.

<or>

Describe the importance of formal sources of credit in the economic development.

Answer:

There is no organisation with supervises the credit activities of lenders in the informal sector...

They charge whatever interest rates they want...

There is no one to stop them from using unfair means to get their money back...

The high interest rate for borrowing leads to increased debt, and eventually, the situation of a debt trap...

Thus, it is necessary that banks and co-operatives increase their lending, particularly in the rural areas, so that the dependence on informal sources of credit reduces. Cheap and affordable credit is crucial for the country's development...

Let us take the case of a farmer. If he has to take a loan from a lender for crop production, and due to certain unavoidable factors there is a crop failure, then he will not be able to repay the loan...

Now either the farmer has to take a fresh loan, or sell some portion of his land, for instance, to repay the loan...

Thus, in high risk situations credit may create further problems for the borrower just as the farmer has fallen into the situation of a debt trap...

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