Why is it being considered necessary to replace the private moneylenders by institutional sources of credit?

Question

Accepted Answer

Private moneylenders exploited poor farmers by charging exorbitant rates of interest ranging from 24% to 50%, manipulating their accounts and imposing unfavourable loan conditions, such as forcing borrowers to sell their produce at low prices. Therefore, it has been considered necessary to replace private moneylenders with institutional sources of credit because:

1. The supply of credit from moneylenders was irregular and depended largely on personal relations between the borrower and the lender.

2. Moneylenders often took advantage of the ignorance and helplessness of the cultivator to exploit him.

3. Since the borrower was generally illiterate, the moneylender often resorted to downright cheating, such as failure to record the repayments in full.

4. Landless tenants and farm workers, who had no land to offer as security, found it difficult to borrow. Loans were available only on very difficult terms, and the borrowers were often burdened with permanent debt.