describe four major sources of credit for rural households in India
Dear Student
In rural households, 85% households took loan from informal sources and the only 15% from formal sources.
(i) Money lenders are the most dominant amongst sources of credit for rural households. They constitute an informal source of credit. They charge a very high rate of interest on loans as they do not require any collateral.
(ii) Cooperative Societies are another major source of rural credit. They are a source of formal sector credit. Members of a Cooperative, pool their resources for helping one another, e.g., Farmers’ Cooperatives, Weavers’ Cooperatives etc. They offer cheap credit in rural areas for their members. Once these loans are repaid, another round of loan is offered.
(iii) Agricultural traders, relatives and friends are other informal sources of rural credit. Some farmers borrow from agricultural traders who supply the farm inputs (such as seeds, fertilizers, pesticides, etc.) on credit at the beginning of the cropping season and repay the loans after the harvest.
(iv) Commercial banks also give loans to rural households. However, not many rural households borrow from banks as they require proper documentation and collateral.
Regards
In rural households, 85% households took loan from informal sources and the only 15% from formal sources.
(i) Money lenders are the most dominant amongst sources of credit for rural households. They constitute an informal source of credit. They charge a very high rate of interest on loans as they do not require any collateral.
(ii) Cooperative Societies are another major source of rural credit. They are a source of formal sector credit. Members of a Cooperative, pool their resources for helping one another, e.g., Farmers’ Cooperatives, Weavers’ Cooperatives etc. They offer cheap credit in rural areas for their members. Once these loans are repaid, another round of loan is offered.
(iii) Agricultural traders, relatives and friends are other informal sources of rural credit. Some farmers borrow from agricultural traders who supply the farm inputs (such as seeds, fertilizers, pesticides, etc.) on credit at the beginning of the cropping season and repay the loans after the harvest.
(iv) Commercial banks also give loans to rural households. However, not many rural households borrow from banks as they require proper documentation and collateral.
Regards