Question
Why do we need to expand formal sources of credit in India?
Solution
We need to expand formal sources of credit in India for the reasons mentioned below:
(i) To reduce dependence on informal sources of credit because the latter charge high interest rates and do not benefit the borrower much.
(ii) Cheap and affordable credit is essential for country’s development.
(iii) Most loans from informal lenders carry a very high interest rate and do little to increase the income of the borrowers. Thus, it is necessary that banks and cooperatives increase their lending particularly in the rural areas, so that the dependence on informal sources of credit reduces.
