question_answer

The following table shows the sources of credit for rural households in India in 2003

Source	Share
Moneylenders	30%
Cooperative societies	27%
Commercial banks	25%
Others (traders. Relatives, etc)	18%

On the basis of the above table, answer the following (a) What is the share of formal sector in the total credit? (b) Suggest two measures for improving the share of formal sector in total credit. (c) Why is the moneylender still the largest single source of credit?

Answer:

                (a) 52%. (b) The measures can be (i)The rural people having similar occupations can be asked to organise themselves into Self Help Groups, which will ultimately enable them to get loans from the formal sector. (ii) More bank branches should be opened in rural areas which should assist borrowers in completing the documentation required for loans, as many rural people are unable to fulfil this essential requirement of the formal sector. (c) The moneylender is still the largest single source of credit because he does not require extensive documentation or collateral (both of which are difficult to provide by rural borrowers). Further, he is flexible in the repayment schedule, in case of any problem. In addition, moneylenders are usually available in the rural areas, whereas formal sector sources of finance are few and far between in such areas.