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Read the following source and answer the questions that follow:

Loans from Co-operatives
Besides banks, the other major source of cheap credit in rural areas are the co-operative societies. Members of a co-operative pool their resources for co-operation in certain areas. There are several types of co-operatives possible such as farmers co-operatives, weavers co-operatives,
industrial workers co-operatives etc. Krishak Co-operative functions in a village not very far away from Sonpur. It has 2300 farmers as members. It accepts deposits from its members. With these deposits as collateral, the co- operative has obtained a large loan from the bank. These funds are used to provide loans to members. Once these loans are repaid, another round of lending can take place. Krishak Co-operative provides loans for the purchase of agriculture equipments, loans for cultivation and agricultural trade, fishery loans, loans for constructions of houses and for variety of other expenses.

Question: 1

Which sector includes credit facilities offered by Co-operative Societies?

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Formal credit includes banks and co-operatives that follow official norms and offer low-interest loans.
Updated On: Jan 13, 2026
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Solution and Explanation

The credit provided by Co-operative Societies belongs to the formal credit sector. These are legally-bound institutions, operating within financial and legal structures, providing safe credit options to their members.
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Question: 2

How do Self-Help Groups access external funding?

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SHGs strengthen rural credit by using pooled savings and building trust with banks.
Updated On: Jan 13, 2026
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Solution and Explanation

Self-Help Groups (SHGs) obtain external funding through the regular aggregation of members' small savings. Banks offer loans to SHGs that maintain sound financial practices. These loans are provided to the group as a whole, which then allocates the funds to individual members for personal or business endeavors.
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Question: 3

Explain the functioning of Co-operative Societies.

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Co-operatives work on mutual trust and shared resources, providing low-cost credit to members.
Updated On: Jan 13, 2026
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Solution and Explanation

Co-operative Societies function by combining member resources, frequently among individuals in the same field or location. Key operations include:
Collecting member deposits, which serve as security for bank loans.
Utilizing these loans to offer members accessible credit for purposes such as agriculture, housing, and trade.
Reinvesting loan repayments into subsequent lending cycles.
Maintaining democratic operations, where each member can participate in decision-making. These societies decrease reliance on moneylenders and establish a structured credit system, particularly in rural settings.
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