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“Most of the poor households are still dependent on informal sources of credit.’’ Explain the statement.

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(i) Banks are not present everywhere in rural India, whereas informal sources are easily available in all villages. 

(ii) Getting a loan from a bank is much more difficult for poor people than taking a loan from the informal resources, because bank loans require proper documents and collaterals. 

(iii) Moneylenders provide loan to the poor people without any collateral. 

(iv) Formal sources provide loan only for productive purposes, whereas the informal sources provide credit for productive and non-productive purposes. 

(v) Other informal sources of credit are friends and relatives, or traders and landlords, who know the borrowers personally and therefore do not demand collateral.

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