Describe circumstances that drive individuals to seek loans from informal sources of credit.

Reasons Driving Individuals towards Informal Sources of Credit:

1. Limited Access to Formal Institutions: Inaccessible formal banking services in remote areas or due to lack of documentation and eligibility criteria.

2. Urgent Financial Needs: Immediate requirements for emergencies like healthcare, education, or unforeseen expenses.

3. Flexible Terms and Quick Disbursal: Informal lenders offering more flexible terms, quicker loan approvals, and easier repayment options.

4. Poor Credit History: Individuals with inadequate credit history or low credit scores face challenges accessing formal loans.

5. Social Networks and Trust: Borrowing from known individuals or local moneylenders due to trust within communities.

6. Small Loan Amounts: For smaller sums, informal sources are more accessible and convenient than formal institutions with higher borrowing thresholds.

7. Lack of Awareness: Limited knowledge about formal banking services or lack of understanding regarding eligibility criteria.

These factors compel individuals to seek loans from informal sources despite the associated risks.