CBSE Class 10 Answered

Absence of collateral is one of the major reasons which prevents the poor from getting bank loans. As a result, they are forced to borrow from moneylenders however, the moneylenders charge very high rates of interest, keep no records of the transactions and harass the poor borrowers.

To help the poor in rural areas to avail loans, SHGs have emerged.

• SHGs help borrowers in the rural areas to overcome the problem of lack of collateral which is a requirement in availing loans from the formal sector.
• Borrowers also get timely loans where the cost of borrowing or the interest rate is much lower than informal moneylenders.
• In this way, SHGs play an important role in bridging the gap between formal and informal sources of credit