Question

why do we need to expand formal sources of credit in India

Answer 1

formal sources of credit include banks ,cooperative societies etc. in india most of the people belonging to rural area take loan from moneylenders , relatives and many rich peasants on high interest rate . whereas they can take loan from formal sectors . in india people have to pay high interest to moneylenders etc. and a large part of their ( rural people ) earnings spend to repay the loan and they cannot develop in this way.

Answer 2

●♡  Heya user..!!  ●♡

Here is ur answer..!!

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BECAUSE OF THE FOLLOWING REASONS :

• Compared to the formal lenders most of the informal lenders charge a much higher interests on loans. It means that the cost to the borrower of the informal loans is much higher.

• Higher cost of borrowing means a larger part of earning of the borrowers is used to repay the loan and they have less income left for themselves.

• The higher rate of interest of borrowing can mean that the amount to be repaid is greater than the income of the borrower and this could lead to increasing debt and debt - trap.

• People who might wish to start an enterprise by borrowing may not do so because of the high cost of borrowing.

• For these reasons banks and cooperatives needs to lend more. This would lead to higher incomes and many people could then borrow cheaply for a variety of needs.

• They could grow crops, do business , set up small- scale industries etc. They could set up new industries or trade in goods.

• Cheap and affordable credit is important for the country's development. Hence , it is necessary to expand formal sources of credit in our country.

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I Hope this may help u..!!

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