Question

Describe the bad effects of informal sources of credit on borrowers. ​

Answer 1

Answer:

(i) Most of the informal lenders charge a much higher interest on loans. Thus the cost to the borrower of the informal loans is ..

Answer 2

(i) Most of the informal lenders charge a much higher interest on loans. Thus the cost to the borrower of the informal loans is much higher.

(ii) Higher cost of borrowing means a larger part of earning of the borrowers is used to repay the loan and they have less income left for themselves.

(iii) The high rate of interest of borrowing can mean that the amount to be repaid is greater than the income of the borrower and it can lead to increasing debt and debt-trap.

(iv) People who might wish to start an enterprise by borrowing may not do so because of the high cost of borrowing.