Why do most of the rural households still remain dependent on the informal sources of credit? Explain.
Most of the rural households depend on informal sources of credit due to various reasons. Some of them are given below.
- The formal credit system is not well established in rural areas..
- It’s easier to get a loan from an informal source than from the bank as the former is a quick, hassle free process that doesn’t burden the borrowers with documents, verification, etc.
- Absence of collateral is a major reason that pushes rural people to money lenders.
- A sense of familiarity between the two parties further strengthens this chain.
- The borrowers are able to ask for more money despite the previous outstanding loan .