Why didn't Raju get loans from the formal sectors?

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Absence of collateral security

Raju lives in a rural area

Both 1 & 2

None of these

answer is A.

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Detailed Solution

Raju didn’t get loans from the formal sectors due to the absence of collateral security.
Banks also have less presence in the rural areas of our country. Even if they are present, banks have a lot more paperwork involved and deal only if the person has proper documents, hindering the chances of Raju getting a loan. Since Raju belongs to a poor household, he may not have many assets to set aside as collateral for the bank and since banks require collateral for giving out loans, Raju would most likely prefer to borrow money from his local moneylender as they know each other personally and the moneylender would be willing to let Raju borrow money from him without collateral.

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