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Social Science: Money and Credit - Formal and Informal Financial Institutions for Savings and Credit

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Why is it necessary for the banks and cooperative societies to increase their lending facilities in rural areas? Explain.

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Solution

It is found that due to factors such as inadequate banking system, cumbersome paperwork, lack of credit worthiness and lack of awareness, a large number of rural households still depend on the informal sources of credit such as money lenders and land lords.
However, credit from informal sources can sometimes have serious repercussions such as exorbitant rate of interest and high mortgage obligations. In such a scenario, it is important to expand the formal sources of credit such as banks in rural areas so that credit can be provided for various development activities at reasonable rates without any undue exploitation.

Concept: Formal and Informal Financial Institutions for Savings and Credit
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