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Social Science: Money and Credit - Informal Institutions - Local Money Lenders, Landlords, Self Help Groups, Chit Funds and Private Finance Companies

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How can the formal sector loans be made beneficial for poor farmers and workers? Suggest any five measures.

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Solution

The formal sector credit in India includes loans from banks and cooperatives. RBI supervises their functions of providing loans. These formal sector credits can be made beneficial for poor farmers and workers through the following measures:

i. Formal sector credit needs to be expanded in India so as to save people, especially poor farmers and workers, from exploitation of the informal sector credit.

ii. Provide credit at a reasonable rate of interest to fulfil various needs of the people by providing cheap and affordable credit.

iii. This credit can be distributed equally which helps in benefiting the poor. This can help in promoting agricultural activities and small-scale industries.

iv. The absence of collateral and documentation with rural borrowers would ease the formalities to obtain credit from the formal sector. Provide flexible loans in terms of timelines, interest rates and procedural requirements to rural borrowers.

v. Awareness among rural borrowers against the exploitation of informal sector credit facilities. The need to keep them aware regarding the high rate of interest and debt traps of moneylenders

Concept: Informal Institutions - Local Money Lenders, Landlords, Self Help Groups, Chit Funds and Private Finance Companies
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