Poor households still depend on informal source of credit. Support the statement with examples.

Despite the presence of formal banking structures, numerous impoverished households persistently turn to informal credit channels. This preference can be attributed to the following factors:

1. Accessibility Concerns: Not all regions, especially remote rural areas, have a physical banking presence. For a villager residing in a remote location, traveling long distances to access banking facilities may not be feasible, making the local moneylender a more accessible option.

2. Stringent Formalities: Formal financial institutions often have rigorous documentation requirements and demand collateral—a guarantee, often in the form of property or another valuable asset, to ensure loan repayment. Many poor households may lack the assets to offer as collateral, or the paperwork to prove their creditworthiness, thus barring them from these formal loans.

3. Personal Relationships and Flexibility: Informal lenders, like local moneylenders, often share a personal rapport with borrowers. This familiarity can make them more amenable to offering loans without collateral or with flexible repayment terms. For instance, a farmer might find it easier to borrow from a moneylender who knows him personally and understands his financial cycle, rather than going through the bureaucratic process of a bank.

In essence, while formal banking offers structured and often safer lending avenues, the barriers to access, coupled with the flexibility and personal touch of informal lenders, drive many poor households toward informal credit sources.

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