“Most of the poor households still depend on the informal sector for loans, both in rural and urban areas of India”

“Most of the poor households still depend on the informal sector for loans, both in rural and urban areas of India”. Support the statement with three examples.

POOR households still depends on informal sources of credit because -

  • Banks are not present everywhere in rural India.
  • Even when they are present, getting a loan from a bank is much more difficult than taking a loan from informal sources.
  • Bank loans require proper documents and collateral.
  • Absence of collateral is one of the major reasons which prevent the poor from getting bank loans.
  • Money lenders know the borrowers personally and hence, are often willing to give a loan without collateral.