Question

Why is it difficult to take loan from formal source and especially for poor?

Answer 1

(i) Banks are not present everywhere in rural India.

(ii) Even when they are present, getting a loan from a bank is much more difficult than taking a loan from informal sources.

(iii) Bank loans require proper documents and a collateral. Absence of collateral is one of the major reasons which prevents the poor from getting bank lo

(iv) Informal lenders like moneylenders, know the borrower personally and hence, are often willing to give a loan without a collateral.

(v) The borrowers can, if necessary, approach the moneylender even without repaying their earlier lo

(vi) However, the moneylenders charge very high rates of interest keep no records of the transactions and harass the poor borrowers.

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