Its caused by the refraction of the light that enters and is reflected back out of raindrops. The various colors that make up sunlight get refracted around 40degrees. You only see the rainbow effect from those raindrops for which that 40ish degrees refraction happens to hit your eyes.
the raindrops that meet this condition lie in a circle . you only normally see an arc due to most of the rainbow being obscured by the horizon
In fact you can bend light---I remember my school days--a long long time ago--where we bent light by sending a beam through a glass prism. Sad isnt it, remembering that.
light does only travel in straight lines. using a prism you can refracxt it: ie it will undergoe a sudden change of direction. this is not a bend, but two straight lines meeting. Light can APPEAR to travel in curves but only from someone elses point of view. from the point of view of the light it never does. see einsteins falling elevator thought experiment for details.