Choose the given statement is true/false:

Poor households' share of formal credit in urban areas is low as compared to that of rich households.

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True

False

answer is A.

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Detailed Solution

The above statement is true.
There are a few reasons for the same:
1)      The poor generally don't have collateral, and they also lack a proper loan repayment mode.
2)      Informal sources of credit are preferred by the poor due to the flexibility of terms of credit, like timings and mode of repayment.
3)      It is easier for the poor to approach the moneylenders as they know them personally.
However, the cost of borrowing from these moneylenders is high and more earnings are used to repay the loan. This leads to less income left for the borrowers themselves. Thus, there is a need for banks and cooperatives to lend more to the poor segment of society.

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