credit is useful as well as harmful it depends on the risk involved support the statement with example
Answers
Answer:
Explanation: Credit plays positive as well as negative role.
For example take the case of a shoe manufacturer who has received an order from a trader for 3000 pair of shoes. So to complete the work in time he has to hire a few workers for stitching and pasting works. For that he recieved loans from two sources . First he asked the leather supplier to supply him leather promising to pay later. Then he got the advance payment of 1000 shoes from the trader promising him to supply the order on time. As a result he was able to complete the work on time and earn a good profit.
Credit in this situation increased his income , helped him to pay the leather supplier, and earn a good profit. Credit thus plays a positive role in this situation.
Consider a small farmer who cultivated groundnuts on her 2 acres of land. She took a loan from the moneylender to meet her agricultural needs. Half way the year the crop was affected by pest. Even though she sprayed them with expensive pesticides it made little difference . The credit grow into a huge amount over the year. Next year she took a fresh loan. But it was normal crop this year. So she could not pay the earlier loan. So she have to sell a part of her land to rapay the loan.
The credit in this situation pushes the person into a situation called debt trap from which recovery is painfull. Thus in this case credit plays a negative role
Answer:
Credit is useful because
(i) It helps to meet the working capital needs of production.
(ii) It helps in setting up new industries or businesses.
For ex: small scale industries lend loan to expand their profits.
But, it is harmful also that depends on the risk involved
(i) Credit pushes the borrower into a debt-trap in the case of high risk.
(ii) Instead of improvement in earnings, the borrower is much worse off than before.
For example, farmers have to sell part of land to repay the loan.
Explanation: