Question

“Poor households still depend on informal sources of credit.” Support the statement with examples.

Answer 1

Poor households still depend on informal sources of credit because: 

• Bank loans require proper documentation and collateral which is rarely available with poor households.
• Informal sources of credit such as moneylenders know the borrowers personally and are often willing to give a loan without a collateral. 
• Sometimes, if the borrowers are unable to return the loan, they can get additional loans from moneylenders.