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Question
Answer the following question.
Describe the importance of formal sources of credit in economic development.
Solution
Formal sources of credit are beneficial in the sense that they provide credit at reasonable rates without any undue exploitative practices as faced under informal sources of credit. For instance, taking credit from informal sources can have serious repercussions in the form of exorbitant rates of interest, high mortgage obligations, etc. Formal sources of credit are organized and from such exploitative practices.
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RELATED QUESTIONS
Explain with an example, how credit plays a vital and positive role for development.
Which one of the following is a formal source of credit?
How do banks mediate between those who have surplus money and those who need money?
Majority of the credit needs of the _________ households are met from informal sources.
__________costs of borrowing increase the debt-burden.
The following table shows people in a variety of occupations in urban areas. What are the purposes for which the following people might need loans? Fill in the column.
|
Occupations |
Reason for needing a Loan |
|
Construction worker |
- |
|
Graduate student who is computer literate |
- |
|
A person employed in government service |
- |
|
Migrant labourer in Delhi |
- |
|
Household maid |
- |
|
Small trader |
- |
|
Autorickshaw driver |
- |
|
A worker whose factory has closed down |
- |
Next, classify the people into two groups based on whom you think might get a bank loan and those who might not. What is the criterion that you have used for classification?
How can the problem of unemployment be eradicated in India? Explain any three ways.
Answer the following question.
Describe the bad effects of informal sources of credit on borrowers.
Explain any three reasons for the banks and cooperative societies to increase their lending facilities in rural areas.
Answer the following question.
Give any two examples of the informal sector of credit.
