Banks and cooperatives help people:
1. The informal sector lends at a high-interest rate especially in the rural areas so much of the income of the borrower goes in repaying loans rather than investing it.
2. Often it leads to debt trap where the amount to be repaid is more than the borrower’s income and he has to borrow more.
3. Affordable loans from formal sector would lead to a higher income which they may use for other needs.
4. The poor may use it for growing crops, doing business or even setting up a small-scale industry.
5. If people are able to invest, it would help in the development of the country.
Explanation: Without the benefits of the formal sector, rural households have no option other than going to informal lenders who only exploit them.
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