CUET Preparation Today
Why do people living in rural areas prefer borrowing money from an informal source than from a formal source like banks? |
Taking loan from bank increases the cost of production Getting a loan from bank is difficult Money lenders give loan at lower interest rates All of the above |
Getting a loan from bank is difficult |
Banks are not present everywhere in rural India. Even when they are present, getting a loan from a bank is much more difficult than taking a loan from informal sources. Bank loans require proper documents and collateral. Absence of collateral is one of the major reasons which prevents the poor from getting bank loans. Informal lenders such as moneylenders, on the other hand, know the borrowers personally and hence are often willing to give a loan without collateral. However, the moneylenders charge very high rates of interest, keep no records of the transactions and harass the poor borrowers. |
