why do poor people depend on informal sectors?why don't they depend on formal sectors?
Formal Sector : It 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.
Informal Sector : It includes traders, employers, moneylenders, relatives, friends, etc. No organization is there to supervise its lending activities. Higher interest on loans is charged as compared to formal sources of credit. Poor households largely depend on informal sources of credit.