Question

Most of the credit needs of poor households are met from informal sources of credit. The dependence of richer households on informal sources of credit is less.

Identify the reasons for this situation.

• A. Lack of awareness
• B. Lack of willingness
• C. Lack of education
• D. Lack of collateral

Answer 1

Answer: (A), (C), (D)

Lack of collateral

Rural households are unaware of the formal credit system because of the lack of education. Also, one of the most important reasons for them to choose the informal sector is the lack of collateral. Both these factors are mostly favourable for rich households.