Why do we need to expand formal sources of credit in India?

Most loans from informal lenders carry a very high interest rate and do little to increase the income of the borrowers. The private lenders often exploit their borrowers and trap them in a vicious cycle of debt. Formal sources of credit provide loans at an affordable interest rate and help in the economial growth of an individual. Therefore, it is necessary that banks and cooperatives increase their lending particularly in the rural areas, so that the dependence on informal sources of credit reduces.