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15 points regarding formal sector credit in India. |
| Answer» \xa0Formal and Informal Credit: Who gets that?\tThe various types of loans can be conveniently grouped as\xa0formal sector loans\xa0and\xa0informal sector loans.\tFormal credit\xa0is generally available with the banks and cooperatives. They charge lesser rates of interest than informal institutions. The Reserve Bank of India (RBI) supervises the functioning of formal sources of loans.\tInformal lenders\xa0include moneylenders, traders, employers, relatives and friends etc. They charge much higher interest on loans. There is no one to stop them from using unfair means to get their money back.\tAs cheap and affordable credit is crucial for the country\'s development therefore, banks and cooperative societies need to lend more.\t85% of the loans taken by\xa0poor households\xa0in the urban areas are from informal sources.Rich urban households\xa0take only 10% of their loans from informal sources, while 90% are from formal sources. A\xa0similar pattern is also found in rural areas.In a current scenario, It is the richer households who receive formal credit whereas the poor have to depend on the informal sources.It is important that the formal credit is distributed more equally so that the poor can benefit from the cheaper loans.It is necessary that banks and cooperatives increase their lending, particularly in the rural areas, so that the dependence on informal sources of credit can be reduced.While\xa0formal sector loans need to expand, it is also necessary that everyone receives these loans.\t\t | |