• The above graph shows all the sources of credit(loans) per Rs. 1000 of rural households in India in 2012.
  • As you can see in a rural household moneylenders , landlords and relatives and friends account for 44% of total credit in 2012.
  • The formal sector including commercial banks , cooperative society/banks and government account for 56% of total credit in 2012.
  • The above graph shows formal and informal sources of credit in urban areas .
  • As you can see 85% of the total credit in poor households comes from informal sources .
  • Compared with rich households , only 10% is coming from informal rest 90% is from formal sources .
  • The rich households are able to avail of cheap credit whereas the poor household still has to pay high-interest rates .
  • This shows that most loans in poor households are coming from informal lenders with high-interest rates and do little to increase the income of the borrower.
  • While formal sector loans need to expand , it is also necessary that everyone receives these loans. At present, only rich households can receive cheap loans .
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Davneet Singh

Davneet Singh has done his B.Tech from Indian Institute of Technology, Kanpur. He has been teaching from the past 14 years. He provides courses for Maths, Science, Social Science, Physics, Chemistry, Computer Science at Teachoo.