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in Economics by (48.4k points)

Why is there a great need to expand formal sector of credit in India? Explain any three reasons.

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 There is a great need to expand formal sector of credit in India because: 

  • There is no organisation to supervise the credit activities of lenders in informal sector. 
  •  The rate of interest charged by the informal sector is very high as compared to formal sector. 
  • People who might wish to start a business by borrowing may not do so because of high cost of borrowing in informal sector. 
  • The higher interest rate of borrowing can mean that the amount to be repaid is greater than the income of the borrower in informal sector.

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