Assertion (A): Poor households in both rural and urban India depend more on informal sources of credit than rich households do.
Reason (R): Poor households often lack the collateral and documentation required to access formal sector loans from banks.
Generated by claude-sonnet-4-6 · 2026-06-26 13:23 · grounding rag
Model Answer
Answer: A
Both A and R are true, and R is the correct explanation of A. Poor households lack collateral and proper documents required for bank loans, forcing them to depend on informal sources like moneylenders.
Source: Money and Credit, Chapter 3 — Formal Sector Credit in India; Self-Help Groups for the Poor.
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Explanation
- A is true: Graph 2 and the text confirm that 54% of urban poor households' loans come from informal sources vs. only 17% for rich households. A similar pattern exists in rural areas.
- R is true: The text explicitly states "Absence of collateral is one of the major reasons which prevents the poor from getting bank loans," and bank loans require "proper documents and collateral."
- R correctly explains A: The causal link is direct — because poor households lack collateral/documents (R), they cannot access formal credit and turn to informal sources (A). So option A is correct.