5. Most rural poor are excluded from the ambit of the formal financial system, which raises their dependence on informal sources as well as exposure to financial distress. In this context, explain why formal sector lending, especially to farmers, is so limited. Also suggest some steps that need to be taken to increase access to formal credit in rural areas.

Approach:

♤ Introduce the statement by writing about ineffectiveness of formal financial system in rural areas.

♤ Discuss the limitation of the government’s financial initiatives in rural areas.

♤ List the relevant remedies.