3 Negative role of ctedit
Answers
Credit refers to a loan, an agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment. It refers to an activity of borrowing and lending money between two parties.
Credit can play a both positive and negative role.
a. For example, a manufacturer taking credit during festive season in anticipation of increased demand for his product during the festival, to expand his production, to meet his production costs and later that situation has worked in his favour, as it enabled him to increase his output and sales too. In such a situation ,credit plays a positive role. As in case of Salim the shoe manufacturer, the example mentioned in the textbook.
b. However, in another situation for instance, a small farmer who has taken credit for cultivation might face a problem. As crop production involves high costs on inputs life HYV of seeds, fertilizers, pesticides etc. Farmers generally take loans at the beginning of the season and repay after harvest. But the failure of the crop makes loan repayment impossible, which at times compel them to sell part of their land which worsens their situation. Here, credit has a negative impact.
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