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Why is the share of formal credit lower for poorer households?
AThe poor refuse to take loans
BFormal lenders prefer poor borrowers
CLack of collateral and documentation excludes them from formal-sector loans
DPoor households are wealthier
Answer & Solution
Correct answer: C. Lack of collateral and documentation excludes them from formal-sector loans
1. The poor often lack title to land, formal address proof and credit history.
2. Without collateral and paperwork, formal banks refuse them.
3. They fall back on informal moneylenders at high rates.
_Source: NCERT Class 10 Understanding Economic Development, Ch 3 "Money and Credit"_
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