Why do most of the rural households still remain dependent on the informal sources of credit? Explain.

• Banks are not present everywhere in rural India.
• Even when they are present, getting a loan from a bank is difficult because banks ask for proper documents and collateral.
• Absence of collateral is one of the major reasons which prevents the poor from getting bank loans.
• Informal lenders such as moneylenders know the borrowers personally and are willing to give a loan without collateral.
• Borrowers can approach moneylenders even without repaying their earlier loans.
• However, moneylenders usually charge very high interest rates, keep no records of the transactions and harass poor borrowers.