All Courses
Explore Courses UPSC Exam UPSC Test Series Free Notes EduRev Infinity Get the App Login Join for Free
Sign in Open App
Class 10 Exam  >  Class 10 Questions  >  Why do we need to expand formal source of cre... Start Learning for Free
SaveJoin the Discussion on the App
Why do we need to expand formal source of credit?
Clear all your Class 10 doubts with EduRev
Most Upvoted Answer
Why do we need to expand formal source of credit?
1) To provide loans to the poor and needy.
2) To stop people from getting loans from the informal moneylenders who charge a very high interest.
3) To avoid a situation like debt trap
Community Answer
Why do we need to expand formal source of credit?
Why we need to expand formal source of credit?


Formal sources of credit refer to financial institutions such as banks, cooperatives, and credit unions that provide loans and credit to individuals and businesses. Expanding formal sources of credit is crucial for economic growth and development. Below are some reasons why we need to expand formal sources of credit:


1. Promotes entrepreneurship and business growth


Small businesses are the backbone of any economy. However, most small business owners lack the funds to start and grow their businesses. With formal sources of credit, entrepreneurs can access the capital they need to start and expand their businesses. This, in turn, creates job opportunities, boosts economic growth, and improves the standard of living.


2. Enables access to affordable credit


Formal sources of credit offer affordable credit to individuals and businesses. This is because they have lower interest rates compared to informal lenders such as moneylenders. Formal sources of credit also have flexible repayment terms that enable borrowers to repay their loans comfortably.


3. Encourages savings


Formal sources of credit encourage savings among individuals and businesses. This is because they offer savings accounts that earn interest. By saving with formal sources of credit, individuals and businesses can access loans and credit at a later date.


4. Reduces poverty


Expanding formal sources of credit can reduce poverty levels. This is because individuals and businesses can access credit to start income-generating activities. With a steady income, individuals can improve their standard of living and reduce their reliance on aid and charity.


5. Promotes financial inclusion


Expanding formal sources of credit promotes financial inclusion. This means that more individuals and businesses can access financial services such as loans, savings, and insurance. Financial inclusion is crucial for economic growth and development as it enables individuals and businesses to participate in the economy fully.


In conclusion, expanding formal sources of credit is critical for economic growth and development. By doing so, we can promote entrepreneurship and business growth, enable access to affordable credit, encourage savings, reduce poverty, and promote financial inclusion.
Attention Class 10 Students!
To make sure you are not studying endlessly, EduRev has designed Class 10 study material, with Structured Courses, Videos, & Test Series. Plus get personalized analysis, doubt solving and improvement plans to achieve a great score in Class 10.
Explore Courses for Class 10 exam

Similar Class 10 Doubts

Read the source given below and answer the questions that follows:Banks use the major portion of the deposits to extend loans. There is a huge demand for loans for various economic activities. Banks make use of the deposits to meet the loan requirements of the people. In this way, banks mediate between those who have surplus funds (the depositors) and those who are in need of these funds (the borrowers). Banks charge a higher interest rate on loans than what they offer on deposits. A large number of transactions in our day-to-day activities involve credit in some form or the other. Credit (loan) refers to an agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment. In rural areas, the main demand for credit is for crop production. Crop production involves considerable costs on seeds, fertilisers, pesticides, water, electricity, repair of equipment, etc. The various types of loans can be conveniently grouped as formal sector loans and informal sector loans. Among the former are loans from banks and cooperatives. The informal lenders include moneylenders, traders, employers, relatives and friends, etc. The Reserve Bank of India supervises the functioning of formal sources of loans. For instance, we have seen that the banks maintain a minimum cash balance out of the deposits they receive. The RBI monitors the banks in actually maintaining cash balance. There is no organisation which supervises the credit activities of lenders in the informal sector. They can lend at whatever interest rate they choose. There is no one to stop them from using unfair means to get their money back. Compared to the formal lenders, most of the informal lenders charge a much higher interest on loans. Thus, the cost to the borrower of informal loans is much higher. In recent years, people have tried out some newer ways of providing loans to the poor. The idea is to organise rural poor, in particular women, into small Self-Help Groups (SHGs) and pool (collect) their savings.Answer the following MCQs by choosing the most appropriate optionQ. Banks use the major portion of the deposits to

Read the source given below and answer the questions that follows:Banks use the major portion of the deposits to extend loans. There is a huge demand for loans for various economic activities. Banks make use of the deposits to meet the loan requirements of the people. In this way, banks mediate between those who have surplus funds (the depositors) and those who are in need of these funds (the borrowers). Banks charge a higher interest rate on loans than what they offer on deposits. A large number of transactions in our day-to-day activities involve credit in some form or the other. Credit (loan) refers to an agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment. In rural areas, the main demand for credit is for crop production. Crop production involves considerable costs on seeds, fertilisers, pesticides, water, electricity, repair of equipment, etc. The various types of loans can be conveniently grouped as formal sector loans and informal sector loans. Among the former are loans from banks and cooperatives. The informal lenders include moneylenders, traders, employers, relatives and friends, etc. The Reserve Bank of India supervises the functioning of formal sources of loans. For instance, we have seen that the banks maintain a minimum cash balance out of the deposits they receive. The RBI monitors the banks in actually maintaining cash balance. There is no organisation which supervises the credit activities of lenders in the informal sector. They can lend at whatever interest rate they choose. There is no one to stop them from using unfair means to get their money back. Compared to the formal lenders, most of the informal lenders charge a much higher interest on loans. Thus, the cost to the borrower of informal loans is much higher. In recent years, people have tried out some newer ways of providing loans to the poor. The idea is to organise rural poor, in particular women, into small Self-Help Groups (SHGs) and pool (collect) their savings.Answer the following MCQs by choosing the most appropriate optionQ. Compared to the formal lenders, most of the informal lenders charge a much ................... interest on loans

Read the source given below and answer the questions that follows:Banks use the major portion of the deposits to extend loans. There is a huge demand for loans for various economic activities. Banks make use of the deposits to meet the loan requirements of the people. In this way, banks mediate between those who have surplus funds (the depositors) and those who are in need of these funds (the borrowers). Banks charge a higher interest rate on loans than what they offer on deposits. A large number of transactions in our day-to-day activities involve credit in some form or the other. Credit (loan) refers to an agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment. In rural areas, the main demand for credit is for crop production. Crop production involves considerable costs on seeds, fertilisers, pesticides, water, electricity, repair of equipment, etc. The various types of loans can be conveniently grouped as formal sector loans and informal sector loans. Among the former are loans from banks and cooperatives. The informal lenders include moneylenders, traders, employers, relatives and friends, etc. The Reserve Bank of India supervises the functioning of formal sources of loans. For instance, we have seen that the banks maintain a minimum cash balance out of the deposits they receive. The RBI monitors the banks in actually maintaining cash balance. There is no organisation which supervises the credit activities of lenders in the informal sector. They can lend at whatever interest rate they choose. There is no one to stop them from using unfair means to get their money back. Compared to the formal lenders, most of the informal lenders charge a much higher interest on loans. Thus, the cost to the borrower of informal loans is much higher. In recent years, people have tried out some newer ways of providing loans to the poor. The idea is to organise rural poor, in particular women, into small Self-Help Groups (SHGs) and pool (collect) their savings.Answer the following MCQs by choosing the most appropriate optionQ. Formal sector loans include loans from(i) Banks(ii) Moneylenders(iii) Cooperatives(iv) Traders

Read the source given below and answer the questions that follows:Banks use the major portion of the deposits to extend loans. There is a huge demand for loans for various economic activities. Banks make use of the deposits to meet the loan requirements of the people. In this way, banks mediate between those who have surplus funds (the depositors) and those who are in need of these funds (the borrowers). Banks charge a higher interest rate on loans than what they offer on deposits. A large number of transactions in our day-to-day activities involve credit in some form or the other. Credit (loan) refers to an agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment. In rural areas, the main demand for credit is for crop production. Crop production involves considerable costs on seeds, fertilisers, pesticides, water, electricity, repair of equipment, etc. The various types of loans can be conveniently grouped as formal sector loans and informal sector loans. Among the former are loans from banks and cooperatives. The informal lenders include moneylenders, traders, employers, relatives and friends, etc. The Reserve Bank of India supervises the functioning of formal sources of loans. For instance, we have seen that the banks maintain a minimum cash balance out of the deposits they receive. The RBI monitors the banks in actually maintaining cash balance. There is no organisation which supervises the credit activities of lenders in the informal sector. They can lend at whatever interest rate they choose. There is no one to stop them from using unfair means to get their money back. Compared to the formal lenders, most of the informal lenders charge a much higher interest on loans. Thus, the cost to the borrower of informal loans is much higher. In recent years, people have tried out some newer ways of providing loans to the poor. The idea is to organise rural poor, in particular women, into small Self-Help Groups (SHGs) and pool (collect) their savings.Answer the following MCQs by choosing the most appropriate optionQ. An agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment.

Top Courses for Class 10View all

Top Courses for Class 10

Why do we need to expand formal source of credit?
Question Description
Why do we need to expand formal source of credit? for Class 10 2024 is part of Class 10 preparation. The Question and answers have been prepared according to the Class 10 exam syllabus. Information about Why do we need to expand formal source of credit? covers all topics & solutions for Class 10 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Why do we need to expand formal source of credit?.
Solutions for Why do we need to expand formal source of credit? in English & in Hindi are available as part of our courses for Class 10. Download more important topics, notes, lectures and mock test series for Class 10 Exam by signing up for free.
Here you can find the meaning of Why do we need to expand formal source of credit? defined & explained in the simplest way possible. Besides giving the explanation of Why do we need to expand formal source of credit?, a detailed solution for Why do we need to expand formal source of credit? has been provided alongside types of Why do we need to expand formal source of credit? theory, EduRev gives you an ample number of questions to practice Why do we need to expand formal source of credit? tests, examples and also practice Class 10 tests.
Explore Courses for Class 10 exam

Top Courses for Class 10

Explore Courses

Suggested Free Tests

Signup for Free!
Signup to see your scores go up within 7 days! Learn & Practice with 1000+ FREE Notes, Videos & Tests.
10M+ students study on EduRev
Get App
© EduRev
Education Revolution
Signup to see your scores go up within 7 days!
Access 1000+ FREE Docs, Videos and Tests
Takes less than 10 seconds to signup