ECONOMICS
CREDIT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Poor can benefit from cheaper loans
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Rich can get costly loans
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Rich can get cheaper loans
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None of these
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Detailed explanation-1: -Solution. It is important that the formal credit is distributed more equally so that the poor can benefit from the cheaper loans.
Detailed explanation-2: -(i) Formal sources provide cheap credit. (ii) Credit at affordable rate is available through formal sources. (iii) Terms and conditions of credit through formal sources are regulated by government. (iv) Credit from formal source are favourable.
Detailed explanation-3: -Informal sources of credit such as moneylenders know the borrowers personally and are often willing to give a loan without a collateral. Banks are not present everywhere in rural India, whereas informal sources are easily available in all villages.
Detailed explanation-4: -The two main reasons for formal credit not being available to rural poor are : (i) Absence of collateral and documentation is the main reason which prevents rural poor from getting bank loans. (ii) The arrangements of informal sector loans are flexible in terms of timelines, procedural requirements, interest rates etc.