Answer:
Credit given by formal sectors has some rules and regulations that needs to be followed and also some collateral that should to be submitted. Most times collateral required by financial institution for loans collection makes it difficult for the poor to take loans from banks and other institutions. Thus they have to rely on other informal sources. Most of these collateral can only be afforded by the rich thereby making them to have more access to loans.
Most of the people in rural areas don't have access to native bankers and other financial institution, this increases the share of informal sources of credit among the poor households.
Explanation:
Credit can simply be said to be the total amount of money an individual, organisations, groups e.t.c. can borrow from a bank or other financial institution. Before any formal or informal organisation gives out loans, there are some guidelines and requirement needed.
Formals sectors includes banks and other government financial institution. their rates are quite cheap when compared to informal sectors but the procedures required as well as collateral makes it difficult for the poor and easy for the rich. that is even though banks advance the loans with cheaper interest rate poor households are not able to avail that loan due to terms of credit and formalities.
