Answer:
Reasons:
(i) Banks are not present everywhere in rural India.
(ii) Even if they are present, getting a loan from a bank
is much more difficult than taking a loan from informal sources.
(iii) Bank loans require proper documents and a
collateral. Absence of collateral is one of the major reasons which prevents
the poor from getting bank loans.
(iv) Informal lenders like moneylenders know the borrower
personally and hence, are often willing to give a loan without a collateral.
(v) The borrowers can, if necessary, approach the
moneylender even without repaying their earlier loans.
(vi) However, the moneylenders charge very high rates of
interest, keep no records of the transactions and harass the poor borrowers.
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