Why do you think that the share of formal sector credit is higher for the richer households compared to the poorer households?

The share of formal sector credit is higher for the richer households compared to the poorer households because:

1. Richer households can offer collateral to formal sectors while poor households usually do not have any asset to offer as collateral.
2. Formal loans require extensive documentation (e.g., proof of income, tax returns, business records). Richer households are better able to provide these documents, while poorer households might struggle with this requirement.
3. Richer households are more aware of the products and services offered by formal financial institutions. This knowledge gap can limit poorer households' ability to access formal credit.
4. Richer households typically have more stable and higher incomes, making them more attractive to formal lenders. Poorer households may have irregular and lower incomes, increasing the perceived risk for formal lenders.
5. Poorer households may have longstanding relationships with informal lenders and may trust them more than formal institutions. Richer households are more likely to have established relationships with banks and other formal lenders.