One of the main reasons that rural borrowers rely on the informal sector is the lack of access to formal credit.
Banks and other formal lenders are often reluctant to lend to rural borrowers, as they may perceive them as high-risk borrowers.
This can make it difficult for rural borrowers to access the credit they need to start or expand a business, purchase farm inputs, or cover emergency expenses.
Another factor that contributes to the reliance on the informal sector is the limited collateral available to rural borrowers.
Another factor that contributes to the reliance on the informal sector is the limited collateral available to rural borrowers.
Banks and other formal lenders typically require borrowers to provide collateral, such as property or equipment, to secure a loan.
However, rural borrowers may not have the necessary collateral, as they may not own land or other assets that can be used as collateral.
Many rural borrowers also have limited financial literacy, which can make it difficult for them to navigate the formal banking system.