Why do we need to expand formal sources of credit in india give three reasons
Answers
Answer:
Explanation:
We need to expand the formal souces because of :-
1.)Supervision : The formal sources work under the supervision of the RBI.The RBI monitors that the banks actually maintain cash balance and give loans to small cultivators and farmers too.
On the other hand, there is no organisation which supervises the credit activities of lenders in the informal sector.They can lend at any interest rate.
2.)Lower rate of interest : The rate of interest if the formal sectors is decided by the RBI.So normally,the interest rates are very low.
Banks might not be willing to give loans to certain borrowers if they already have a loan or if they don't have enough cash balance i
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...
____________________________________________________
<Judge It Yourself...>
Hope it helps you! ヅ
✪ Be Brainly ✪