27. How do the banks credit/ Loan play positive role in production? Give suitable examples.
Answers
Answer:
Credit plays a crucial role in a country's development. By sanctioning loans to developing industries and trade, banks provide them with the necessary aid for improvement. This leads to increase in the production, profits and employment.
Credit' refers to an agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment. Credit plays a vital and positive role as: (i) Credit helps people from all walks of life in setting up their business, increase their income and support their families.
Credit allows individuals and organizations to purchase items without having to make an immediate payment in cash. Banks use this system of credit to make loans. The more cash the bank has on hand or in reserve, the more money it can loan to borrowers.
Explanation:
Credit plays a crucial role in a country’s development. By sanctioning loans to developing industries and trade, banks provide them with the necessary aid for improvement.
This leads to increase in the production, profits and employment. However, caution must be exercised in the case of loans from the informal sector which include high interest rates that may be more harmful than good.
For this reason, it is important that the formal sector gives out more loans so that borrowers are not duped by moneylenders, and can ultimately contribute to national development.
For example- A loan given to a fresh post-graduate for setting up a business might contribute to employment generation, infrastructure development in the near future.