“The rich households are availing cheap credit from formal lenders whereas the poor house holds have to pay a heavy price for borrowing.” Comment.
Answer:
- The formal sector still meets only about half of the total credit needs of the rural people.
- The remaining credit needs are met from informal sources.
- Most loans from informal lenders carry a very high interest rate and do little to increase the income of the borrowers.
- Thus, it is necessary that banks and cooperatives increase their lending particularly in the rural areas, so that the dependence on informal sources of credit reduces.
- While formal sector loans need to expand, it is also necessary that everyone receives these loans.
- At present, it is the rich households who receive formal credit whereas the poor have to depend on the informal sources.