The dichotomy of the Indian money market into organised and unorganised sectors has certain adverse effects on the working of the financial system in the country.
(1) Check on Banking Habit:
On account of widespread indigenous bankers and money-lenders with their informal methods of dealings in rural areas, banking habits among the rural people are normally discouraged.
(2) Minimisation of Bank Credit:
ADVERTISEMENTS:
On account of the wide coverage of money-lenders and indigenous bankers in the countryside in catering to the credit needs of the rural economy, the use of bank credit has been minimised.
(3) Check on the Monetisation of Process:
The unorganised sector of the money market is responsible for restricting the volume of monetary transactions and perpetuating non-monetised transactions which hinder the progress of monetisation in the rural economy.
(4) Ineffective Tapping and Mobilisation of Savings:
ADVERTISEMENTS:
On account of the existence of the unorganised sector, people in rural India are deprived of the attractive/ remunerative saving schemes which could encourage their savings. Hence, rural savings potentials are not effectively mobilised for productive investment and capital formation.
(5) Preference for Cash Transactions:
Indigenous bankers provide no cheque facilities. Thus, in rural areas, in the absence of adequate modern banking facilities, there has been a restricted use of cheque system. Hence, dealings in cash payments are always preferred to cheques in rural trade.