Why do we need to expand formal sources of credit in India?

(i) After comparing to the formal lenders we found that the most of the informal lenders charge much higher interest on loans. Then informal loans cost borrowers much more high.

(ii) The higher cost of borrowing represents that a major proportion of the earning of the borrowers is used to repay the loans and due to which nothing has been left for their own.

(iii) High rate of interest of borrowing shows the amount to be rapid higher than income of the borrower and this way it leads increasing debt and debt-trap.

(iv) High cost of borrowing let not borrowers to start any kind of business even after wanting to do so.

(v) On looking at nation’s development we find that it is cheap and affordable credit which is essential for development. So, it is necessary for any country to expand its formal sources of credit.