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Why is it necessary for banks and cooperatives to increase their lending in rural areas? Explain.
Answer:
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Points to Remember:
- Reduce dependency on the informal sector
- Cheap and affordable credit
- Informal sector has a very high-interest rate and does little to increase the income of the borrower . Also, lenders in the informal sector exploit their borrowers to recover their loans.
- Benefits the poor if divided equally.
- To improve the livelihood of rural people , banks and cooperatives need to increase lending .
Answer to be written:
The banks and cooperatives must increase their lending in rural areas because of the following reasons:
- If the banks and cooperatives increase their lending in rural areas it will reduce the dependency of rural people on the informal sector because no organisation monitors informal sector and hence the lenders in informal sector exploit their borrowers .
- In the informal sector , banks and cooperatives are regulated and monitored by the RBI and thus the loan or credit is under control and is cheap and affordable . Also, cheap and affordable credit is crucial for the country’s development.
- Most loans from informal lenders carry a very high-interest rate and do little to increase the income of the borrowers to recover their loan lenders in the informal sector exploit their borrowers and there is no organisation to stop them.
- For the poor to benefit from cheaper loans , formal credit should be distributed more equally .
- To improve the livelihoods of the rural people , banks and cooperative societies need to increase lending facilities .
(Any three points)
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