why does rich households take loan from formal sector?

Rich households take loans from the formal sector because the formal sector demands collateral for providing loans. Collateral is some form of asset like land or property that the borrower can provide to the bank as security in case the loan is not repaid. Only rich people possess the means to provide such collateral.

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Because they know about formal sector that it have less interest rate than any informal sector of getting loans such as moneylenders who lend money with higher interest rate.
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