Question

The formal sector meets only about half of the total credit needs of the rural people. The remaining credit needs are met through the informal sources. Most of the loans from the informal lenders have very high interest rates and do little to increase the income of the borrowers.

What do you suggest is the best way to reduce the dependence on informal credit?

• A. Increase in the lending capacity of banks
• B. Increase in the lending capacity of cooperatives
• C. Increase in the lending capacity of moneylenders
• D. Increase in the lending capacity of both banks and cooperatives

Answer 1

The correct option is D Increase in the lending capacity of both banks and cooperatives

Both banks and cooperatives are sources formal credit for the rural and the urban sector in India. Both of these need to increase their lending capacity. An increase in their lending capacity would reduce the dependence on informal sectors, which would help the rural population.