. Banks are not present everywhere in rural India.
. Even if they are present, getting a loan from a bank is much more difficult than taking a loan
from informal sources.
. 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.
. Informal lenders like moneylenders know the borrower personally and hence, are often willing to give a loan without a collateral.
. The borrowers can, if necessary, approach the moneylender even without repaying their earlier loans.
. However, the moneylenders charge very high rates of interest, keep no records of the transactions and harass the poor borrowers.