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Q.

Why do people in rural areas shy away from formal sources of credit in India?

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a

They don't need loans

b

There are less banks in rural areas

c

They are self-sufficient

d

None of the above

answer is B.

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Detailed Solution

The people in rural areas shy away from formal sources of credit because there are fewer banks in rural areas. Also, due to a lack of education, many don’t realise the benefits of loans from the formal sector. Therefore, they depend on informal sources, like moneylenders, friends, and relatives. However, they charge a high rate of interest from borrowers, which might be difficult for some people to repay. Thus, there is a need to increase the formal sources of credit in rural areas.

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