Which of the following organizations supervises the credit activities of lenders in the informal sector?

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RBI

Commercial banks

Ministry of Finance

None of the above

answer is D.

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Detailed Solution

In the informal sector, there is no provision for supervision. Hence, none of the organizations supervises the credit activities of lenders in the informal sector. Informal sources of credit charge a much higher rate of interest on loans, anywhere from 3% to 5% per month, than formal sources of credit. This leaves the borrowers with less money to spend than what they earned from the borrowed amount. Since informal sources of credit have no rules and regulations to guide them, they often use immoral use of force to get back their money. They may even impose conditions on people to pay back their money by hook or crook, even if a person is stuck in a debt trap due to the high-interest rates charged by informal sources of credit, which goes unnoticed and unsupervised by any organization.

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