Banking Services and Operations

1. Formal sources of credit do not include employers as there is no role of these employers all these works are related to banks and the cooperatives.
2. Employers are there merely to serve the bank staff and do the work as it is asked to do by their owner.

The loan extended by banks and co-operative institutions constitutes formal sector of credit. The functioning of these financial institutions is supervised by the Reserve Bank of India.

Money helps to facilitate trade because people in the economy generally recognize it as valuable. Money is called medium of exchange because money is a widely accepted token that can be used for exchange of any good or service. In old days, barter system was used as medium of exchange and later it was gold.

• Money lenders are the indigenous bankers of India.
• Usually, they lend money on short term basis. 
  
• Collateral in form of gold is taken from borrowers.
• Money lenders are not supervised or controlled by RBI in India.

Small farmers borrow money for cultivation from money lenders.
They borrow money from money lenders because they don't have any form of security (collateral) as requested by the formal sources of credit. 
Small farmers often get exploited with higher interest from money lenders.

Collateral is a type of a security taken by the banks from its customers.Collateral can be in the form of fixed deposit,  property documents, etc.Rural farmers/ Marginal farmers/ Landless labourers occupy the majority of rural poor population and savings of rural poor is negligible. 
Providing collateral to bank for borrowing loans is a big challenge for rural poor.
Thus banks usually reject loans to rural poor due to the non presence of collateral security by poor.

Majority of the people in rural areas depend on informal sources for loans.

Informal sources include landlords and rich farmers.

 The main reasons behind this are:

1. The number of banks in rural remote areas is low.

2. Bank loans require proper documents and collateral (security). Absence of collateral is one of the major reasons which prevents the poor from getting bank loans.

3. Informal lenders like landlords, know the borrower personally and hence, are often willing to give a loan without a security.

People deposit their money in the banks as it earns interest and money deposited in the banks are secured.
Money can be withdrawn any time by the customer on demand.

Formal sector credit in India includes loans from banks and cooperatives. RBI supervises their functions of giving loans. Rich urban households depend largely on formal sources of credit. Lower rate of interest on loans is charged as compared to informal sources of credit.

A self-help group is an economic intermediary group of 10 to 20 local women or men between 18 to 40 years. Most self-help groups are situated in India, though SHGs can be established in other countries, particularly in South Asia and Southeast Asia. 

SHG is not whatever thing but a group of people who are on daily wages, they form a group and from that group, one person collects the money and gives the wealth to the person who is in need. Members also make modest measure savings contributions over a few months until there is adequate money in the group to begin lending. 

Thus, the correct option is C.

PMLA: Prevention of Money Laundering Act (2002)(2002).

Creditworthiness is how a lender determines that you will default on your debt obligations, or how worthy you are to receive new credit. Your creditworthiness is what creditors look at before they approve any new credit to you.

Informal credit sources are those outside the regulated banking system. Moneylenders operate outside the formal regulatory framework of the central bank.