Question

Explain the need to expand formal sources of credit in rural India.

Answer 1

There is a great need to expand formal sources of credit in rural India to decrease the dependency of rural people on the informal sources of credit. the credit from informal sources is available at a very high-interest rate and it only leads to the exploitation of the rural people (even debt trap). The formal sources of credit come at a cheaper interest rate and it will lead to the prosperity of the rural people in the following ways

(i)This would lead to higher incomes and many people could then borrow cheaply for a variety of needs.

(ii)They could grow crops, do business, set up small-scale industries, etc.

(iii)They could set up new industries or trade in goods.