What is the Role of Credit for Development?

By Shivank Goel|Updated : September 5th, 2022

Credit plays a very crucial role in a country's growth and development and, therefore, should be made available at affordable rates. The availability of credit at an easy rate is the first step toward an economically strong nation. Therefore, credit should be made available at cheaper rates as much as possible so that a large number of people can actually benefit from it. Affordable rates lead to more borrowing by businesses and other entities, which will directly lead to better economic growth in the country.

We can say that 'credit supply' is the key point in a country's economic growth.

Sources of Credit

There are two kinds of sources for credit facilities that can be opted by a person if he/she is looking for a financial source. One can choose from formal and informal sources of credit.

The formal sources of credit are directly controlled by the government and are expected to follow the rules and regulations made by the government. These include loans from banks and cooperatives.

The informal sources are not controlled by the government and function independently without necessarily adhering to any laws. These are loans from various sources such as money lenders, merchants, traders, employers, etc.

Both the sources of credit are open to the public or customers. But, it is always safe to go with the government-regulated sources of loans as they are well-supervised and secured.

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FAQs

  • The availability of credit at a cheap rate leads to more borrowing by businesses and other entities, which will directly lead to better economic growth in the country.

  • There are broadly two types of sources for credit:

    1. formal
    2. informal

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