Question

Explain 2 situations where credit plays a positive role and negative role?

Answer 1

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.