Poor households in urban areas take loans from which type of source?

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Informal

Formal

Direct

Both (1) and (2)

answer is D.

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Detailed Solution

Poor households in urban areas take loans from informal and formal sources.
There are two types of loans, namely, formal and informal. Formal loan providers offer loans at a cheaper rate than informal loan providers. The only requirements are collateral security and good creditworthiness. The sources of formal loans are banks, cooperatives, regional rural banks, etc. The informal sector loan providers offer loans at a higher interest rate but do not have the condition of good creditworthiness and collateral security. These include moneylenders, relatives, friends, etc. In the informal sector, loans are preferred by people in rural areas. People like to take loans from both sectors based on their needs in urban areas.

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