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Question
Why do we need to expand formal sources of credit in India?
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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 for 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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