Describe four major sources of credit for rural households

Describe four major sources of credit for rural households.

MONEY lenders, traders, relatives and friends, cooperative societies and Commercial Banks are the major sources of credit in rural India.

    • Money lenders are the main source of credit for rural households. Though they charge a very high rate of interest on loans, they are the most convenient source of credit for them. The borrowers can take loan any time or any day which they want. Not only this, they do not require any collateral.
    • On the other hand, they know the borrowers personally. Borrowers can approach the money lenders even without repaying their earlier loans.
    • Agricultural traders, relatives and friends are major sources of rural credit.
    • Some farmers borrow from agricultural traders who supply the farm inputs such as seeds, fertilizers, pesticides etc. on credit at the beginning of the cropping season and repay the loan after the harvest.
    • Cooperative societies are also paying important role in paying loans to the rural households. They are the source of formal sector credit. Members of cooperative pool their resources for helping one another. They are cheap source of credit for their members. Once these loans are repaid, another round of loan is offered.
    • Banks are available in rural India. They also become a source of loan to the rural households. Getting a loan from a bank is much more difficult. Bank loans require proper documents and collateral.