Formal Source of Credit

Cooperative societies are the formal source of credit.

Explanation

Cooperative societies are organizations that are formed by individuals with similar economic needs and goals. They operate on the principle of mutual cooperation and provide financial assistance to their members. These societies are registered under the Cooperative Societies Act and are governed by certain rules and regulations.

Advantages of Cooperative Societies as a Formal Source of Credit:

1. Easy access to credit: Cooperative societies provide credit facilities to their members without any discrimination. This ensures that individuals who are in need of credit for various purposes, such as agriculture, small businesses, or personal needs, can easily access it.

2. Lower interest rates: Cooperative societies generally charge lower interest rates compared to other formal sources of credit. This makes it affordable for borrowers to repay their loans without burdening themselves with high interest costs.

3. Flexible repayment terms: Cooperative societies understand the financial constraints of their members and offer flexible repayment terms. They take into consideration the income patterns and cash flows of the borrowers, allowing them to repay the loan in installments that suit their financial situation.

4. No collateral requirement: Unlike traditional financial institutions, cooperative societies do not require collateral for providing credit. This makes it easier for individuals who do not possess valuable assets to obtain credit.

5. Member participation: Cooperative societies provide an opportunity for members to actively participate in the decision-making process. This ensures that the credit facilities offered by the society are tailored to the needs of the members and are in line with their preferences.

6. Social benefits: Apart from providing credit, cooperative societies also aim to uplift the social and economic status of their members. They provide training programs, technical assistance, and guidance to improve the skills and knowledge of their members, thereby empowering them to become self-reliant.

Conclusion

Cooperative societies serve as an important formal source of credit, particularly for individuals who do not have access to traditional financial institutions. They provide affordable credit facilities, flexible repayment terms, and promote member participation, making them an effective means of financial inclusion and empowerment.