The correct option is 2 and 3 only.
Explanation
Credit sources in an economy are broadly classified into formal sector loans (banks and cooperatives) and informal sector loans (moneylenders, traders, employers, relatives, and friends). The distribution of these loans varies significantly based on the asset base and income levels of households. Formal sector loans generally carry lower interest rates and are regulated by the Reserve Bank of India (RBI), whereas informal loans often carry higher interest rates and lack regulatory oversight.
Statement-wise Analysis:
- Statement 1 is Incorrect.
Poor households in urban areas typically lack the necessary collateral and documentation required by formal financial institutions. Consequently, statistical data indicates that a vast majority (often estimated around 85%) of the credit needs of poor households are met through informal sources rather than formal ones. - Statement 2 is Correct.
Rich households possess collateral (assets like land, buildings, or deposits) and have the documentation required to access the formal banking system. As a result, the majority of their loans (often estimated around 90%) are sourced from formal sector institutions, allowing them to benefit from lower interest rates. - Statement 3 is Correct.
This statement is a direct inference from the previous two points. Since poor households rely heavily on informal sources and rich households rely on formal sources, the share of formal sector credit is significantly lower for poor households compared to rich households. This disparity highlights the need for greater financial inclusion.
Key Takeaway:
Access to formal credit is positively correlated with a household's income and asset base. Poor households depend largely on the informal sector due to a lack of collateral, while well-off households predominantly utilize cheap credit from the formal sector.