What are the two main reasons for formal credit not being available to the rural poor?

What are the main reasons for the credit in rural areas?

i In rural areas the main demand for credit is for crop production. ii crop production involves considerable costs on seeds fertilisers pesticides water electricity repair of equipment etc. iii Farmers usually takes crop loans at the beginning of the season and repay the loan after harvest.

Why do rural poor take informal credit?

Poor people in rural areas are still dependent on informal credit sources such as the moneylenders who charge an exorbitant rate of interest on the given loans. It is because banks are not present in far-off villages in rural India. Further, taking a loan from a bank is much difficult due to extensive paper work.

Why are informal sources of credit preferred in rural areas give five reasons to support your answer?

Answer:Informal sources of credit are preferred in rural areas because people living there are poor and they have nothing to keep as collateral in banks so they take loans from money lenders who gives them loans without any collateral. In formal sources there is high rate of interest. Due to which people cant pay back.

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Why do the rural borrowers depend on the informal sources of credit give two reasons?

The rural borrowers depend on the informal sector for credit because : (i) Absense of collateral and documentation with rural borrowers. (ii) Flexible loans in term of timelines, interest rates, procedural requirements etc. … If the group is regular in savings for year or two, it can avail loan from the bank.

What do formal sources of credit not include?

Formal sources of credit do not involve employers as these activities are linked to banks and cooperatives because there is no role for all of these employers. Employers are there only to represent the employees of the bank and do the job as their employer is expected to do.

What are the problems of rural credit?

Rural credit agencies and its schemes have failed to meet the needs of the small and marginal farmers. Thus, lesser attention has been given on the credit needs of the needy farmers whereas the comparatively well-to-do farmers are getting more attention from the credit agencies for their better credit worthiness.

What are the disadvantages of informal sources of credit?

(i) Most of the informal lenders charge a much higher interest on loans. Thus the cost to the borrower of the informal loans is much higher. (ii) Higher cost of borrowing means a larger part of earning of the borrowers is used to repay the loan and they have less income left for themselves.

What are the 2 sources of credit?

Answer: The two sources of credit are formal sources and informal sources: Formal sources of credit: 1. Banks and cooperative societies fall under the formal sector. One can obtain loans from banks or cooperative societies.

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What are the features of formal sources of credit?

Features of formal sources of credit are :

(c) They follow proper terms of credit which includes collateral, documentation, rate of interest and mode of repayment. (d) They provide cheap and affordable credits with common terms of credit for all.

Why do farmers prefer informal credit?

The borrowing behavior of the farmers revealed that educated farmers and big farmers take loaning from the formal sector. The distance of the formal sector loaning agency, number of visits to take the loan, high transaction cost and bribe and corruption push the farmer towards informal loaning.

Why do poor households prefer taking loans from informal sources of credit?

2 Answers. Poor households still depend on informal sources of credit because: Bank loans require proper documentation and collateral which is rarely available with poor households. Informal sources of credit such as moneylenders know the borrowers personally and are often willing to give a loan without a collateral.