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

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


  1. A
    They don't need loans
  2. B
    There are less banks in rural areas
  3. C
    They are self-sufficient
  4. D
    None of the above 

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    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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