Why are most of the poor households deprived of the formal sector of loans?

The absence of proper documents and collateral deprive most of the poor of credit facilities extended by the formal sector.

NOTE – Lack of collateral is the major cause of dependence on informal sources of loans. The informal lenders are also willing to provide loans without collateral and many times they know the borrowers personally and therefore the borrowers can approach the moneylenders even without repaying their earlier loans.