Question

Read the given source and answer the questions that follow:

Loans from Cooperatives Besides banks, the other major source of cheap credit in rural areas are the cooperative societies (or cooperatives). Members of a cooperative pool their resources for cooperation in certain areas. There are several types of cooperatives possible such as farmers cooperatives, weavers cooperatives and industrial workers cooperatives, etc. Krishak Cooperative functions in a village not very far away from Sonpur. It has 2300 farmers as members. It accepts deposits from its members. With these deposits as collateral, the Cooperative has obtained a large loan from the bank. These funds are used to provide loans to members. Once these loans are repaid, another round of lending can take place. Krishak Cooperative provides loans for the purchase of agricultural implements, loans for cultivation and agricultural trade, fishery loans, loans for construction of houses and for a variety of other expenses.

1. 'Cooperative society' is an example of which source of 'credit'? (1)
2. Explain the contribution of Cooperative Societies in rural development. (1)
3. Mention any two sources of capital for Self-Help Groups. (2)

Answer 1

1. 'Cooperative society' is an example of a formal source of credit. These societies are organized groups that provide financial services to their members, including savings and loan facilities, based on mutual aid and cooperation.
2. Cooperative Societies contribute significantly to rural development by providing access to financial services, which are often unavailable or very costly if sourced from traditional banks or informal lenders. They mobilize savings from their members and use these funds to offer loans at reasonable interest rates. This facilitates the purchase of inputs, equipment, and other necessities for agricultural and related activities, thus enhancing productivity, income levels, and overall economic well-being in rural areas.
3. Two primary sources of capital for Self-Help Groups (SHGs) are:
   • Member savings: Members of an SHG regularly contribute a fixed amount to the group's savings, which can then be used to provide loans to the members themselves.
   • Bank loans: Once an SHG has demonstrated a regular pattern of savings and internal lending, it can become eligible for bank loans. These loans are usually sanctioned in the name of the SHG and can be used to create self-employment opportunities for members, such as purchasing raw materials or assets like sewing machines and cattle.