“Poor households still depend on informal sources of credit.”

“Poor households still depend on informal sources of credit.” Support the statement with examples.

Answer:
Poor Households still depend on informal sources of credit because:-

  • Banks are not present everywhere on rural area.
  • Even when they are present getting a loan from the bank is much more difficult than tabbing a loan from informal sources.
  • Mega banks or public sector banks require proper documents and collateral.
  • Absence of collateral is of one of the major reasons which prevent the poor from getting bank loans.
  • Informal lenders such as money lenders they know the borrowers personally and they are willing to give a loan without collateral.