Question

Why is there more inclination towards informal credit sources than banks?

• A. Banks have long queues.
• B. Banks have a tedious loan process.
• C. Banks demand a collateral.
• D. Banks are inaccessible in rural areas.

Answer 1

Answer: (B), (C), (D)

Banks are inaccessible in rural areas.

Credit from banks is formal and relatively safer. However, there are very few banks in rural areas. In addition, banks have a tedious loan process, which makes it difficult for certain people to follow. Also, not everyone can afford a collateral for loans. These aspects make people choose informal sector credit over formal sector credit.