Explain the term debt trap why is it more rampant in rural areas
Answers
Answer:
Explanation:
A situation in which a debt is difficult or impossible to repay, typically because high interest payments prevent repayment of the principal. An incentive structure that lures individuals into accepting long-term debt obligations under conditions that strongly favor the lender.
Answer:
The farmers take crop loans at the beginning of the season and repay the loan after harvest. When the farmer’s income is not sufficient to repay the credit or fail to repay the credit, a part of land is sold to repay the credit. It is a situation called debt-trap.
Debt-trap is a situation in which a person after taking a loan is not able to pay back the loan.
It is more common in rural areas because
(i) A borrower repays a loan by selling the agricultural produce, which sometimes may not be enough to repay the loan.
(ii) Rural borrowers normally depend on informal sources of credit who charge a high rate of interest. This repayment of larger amounts may sometimes be larger than their income.
Thus, it can be concluded that loans from banks always help to raise^people’s earning capacity.
Explanation:
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