Question

why do formal sources of credit needed to expand in india

Answer 1

The reasons for expanding credit in India are

(i) High cost of borrowing leads to a major share of earnings going into payment of interest on the loan.

(ii) Sometimes the higher interest rate leads to the requirement to pay more than the earnings, thus falling into a debt-trap.

(iii) Borrowers falling into debt-traps discourage more people from borrowing, thus reducing development of the country.

(iv)Banks and cooperative societies lending to more borrowers will lead to higher incomes and many people could then borrow cheaply for a variety of needs like growing crops, set-up business or small-scale industries

Answer 2

We need to expand the formal sources of credit because of the following reasons;) (1) Formal sources of credit are less risky and they charge less rate of interest . (2) The RBI supervises the functioning of formal sources if loans. It monitors the bank in actually maintain cash balance.