Question

Why does the government need to expand formal sources of credit?​

Answer 1

Answer:

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

Answer 2

Explanation:

Thus, it is necessary that banks and cooperatives increase their lending particularly in the rural areas, so that the dependence of the poor on informal sources of credit reduces. . It is important that the formal credit is distributed more equally so that the poor can benefit from the cheaper loans.