main reasons for formal credit not being available to the rural poor, due to
which they are dependent on informal credit sources are
(i) Lack of documents of employment,
earnings, etc to convince banks that they will be able to repay the loan.
(ii) They usually lack any property which can act as collateral or
security against loan default.
There is a need to expand rural credit so that the rural borrowers are
encouraged to take loans from formal sources because
(i) Rural borrowers depend on informal sources
like moneylenders who charge them high rates of interest, which can sometimes
land them into a debt-trap.
(ii) It will lead to higher incomes and development of the country.
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