What are the various sources of credit in rural areas? Which one of them is the most convenient source of credit and why?
VARIOUS informal sources of credit are demented in rural areas. Majority of borrowers take loan from informal sources. They include money lenders, traders, employers relatives, friends, etc. They charge high rate of interest on loans. They are the most convenient source of credit in the rural areas.
Banks and cooperatives are the most convenient source of credit but they are not present everywhere in rural India. Even when they are present, getting 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 prevents poor from getting bank loans.
Therefore informal lenders such as money lenders are the major source of loans in rural areas because they know the borrowers personally. Hence they are often willing to give a loan without collateral any time and any day. The borrowers can, if necessary, approach the money lenders even without repaying their earlier loans.
Agricultural traders, relatives and friends are other informal sources of rural credit. Some farmers borrow from agricultural traders who supply the farm inputs such as speed, fertilizers etc. on credit at the beginning of the cropping season.