Tag: loans from banks and financial institutions

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.

• Money borrowed on higher rates of interest will usually increase the debt burden.
• Informal sources of credit charges higher rates of interest. 
  
• Due to higher rate of interest the informal sources of credit are exploitative in nature.
  

The central co-operative banks are the federations of primary credit societies in a district.
The central co-operative banks are
of two types.
The state co-operative bank acts as a watchdog of co-operative banks operating in the state.

The interest charged by the bank from its borrowers is higher than the interest it pays to its depositors.
The difference between the interest paid by the bank to its depositors and interest paid by the borrowers to the bank is the income of the bank.

• In 1861-62, the British rulers introduced its first paper money: ₹10 notes in 1864, ₹5 notes in 1872, ₹10,000 notes in 1899, ₹100 notes in 1900, 50-rupee notes in 1905, 500-rupee notes in 1907 and 1000-rupee notes in 1909.

The following securities might be considered as collateral:

1. Original sale deed of the property.
2. Documents to indicate the borrower's banks deposits.
3. Other assets owned by the borrower.
   

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Money can be withdrawn any time by the customer on demand.