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Question
Why do we need to expand formal sources of credit in India?
Solution
- Informal loans are far more expensive and often result in debt traps. Also, the high cost of borrowing in this situation could keep people from starting a new business through borrowing.
- The majority of loans from unofficial lenders have extremely high interest rates and don't significantly raise borrowers' incomes. Therefore, in order to reduce the hungry population's need on unofficial sources of credit, banks and cooperatives must expand their lending, especially in rural areas.
- In order for the poor to take advantage of the lower-cost loans, it is critical that formal credit be split more fairly.
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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?
Why is it necessary for the banks and cooperative societies to increase their lending facilities in rural areas? Explain.
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.
“Credit can play a negative role.” Justify the statement with arguments.
Answer the following question.
Describe the importance of formal sources of credit in economic development.
Explain the importance of formal sector loans in India.
Answer the following question.
Give any two examples of the informal sector of credit.
Answer the following question.
Why is cheap and affordable credit important for the country's development? Explain any three reasons.
