Question

Arathi is a government employee and belong to rich urban household and Kamini is a worker in the construction site. Both of them needs to take a loan. Who will be successfully able to take loan from formal source of credit? Why?​

Answer 1

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sir jay hind!

Logically speaking the loan should be granted to Rani who is working as a helper. But, according to the rules and regulations of the bank or any other formal source who are providing loan, it will be granted to Amrita.

Formal Source requires documents like: pay slip which range from 3 to 6 months. Bank statement; experience certificate, that is, you should show 3 years of continuous employment. All these can be provided by Amrita very easily. Whereas, it will be difficult for Rani. In the case of Rani, she wouldn’t have been employed continuously as they are taken on contract basis and her salary wouldn’t have been credited in the bank. There wouldn’t have been any formal recruitment process to provide appointment order or experience certificate

Amrita will get the loan from the formal sector because:-

1. She is a government employee and has all the necessary things required for getting a loan from the formal sector.

2. She has a collateral asset as she belongs to a rich urban family.

3. She can promise the repayment of the loan through her salary.

Answer 2

Explanation:

1. Collateral - It is an asset that the borrower owns (exampleland, building, livestock, vehicles etc.) and uses as a guarantee to a lender until the loan is repaid. If the borrower fails to repay the loan, the lender can obtain his payment by selling that particular asset.

2. Documentation - A formal source of credit functions according to certain rules and regulations. In extending loans. they demand a set of formal documents of the borrower for identity and security purposes. The interest rate charged on loans along with the mode of repayment is also specified in formal documents.

3. Financial Capability - The formal source of credit needs to ensure the financial independence of the borrower. The poor often fail to get loans from these sources because of the lack of various terms of credit.

hope it's helpful to you