Explain two situations where credit plays a positive role and a negative role
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Answer:
There are two positive and negatives role of credit. credit helps to meet the Working capital needs of production. ... in the case of high risk , credit pushes the borrower into a debt - trap . that is credit in this case pushes the borrower into a situation from which recovery is very painful....
Credit place two roll one which led the borrower to profit sight and other lead the way to the debt. Let take a situation in which shoe manufacturer has received an order from a large trade in town for 3000 pairs of shoes to deliverd in a month time. To complete production on time the shoe manufacturer hase to hire more worker for stitching and pasting work so he first take a lone from the large trailer as advance payment for 1000 pairs of shoes with a promise to deliver the whole order by the end of the month. secondly he he asks the ladder supplier to supply the ladder now and promised to pay him later.
So at the end of the month shoe manufacturer is able to deliver the order make a good profit and the money that he had borrowed. in the case of the shoe manufacturer credid played a positive role.
In the second situation Swapna small farmer gross groundnut on her 3 acres of land she takes a loan from the money lender with higher interest to meet the expenses of cultivation hoping that harvest would help repay the loan. But midway through the season the crop is hitten by pest and the crop fails. Thought Swapna sprays her crop with expensive pesticides. She is unable to repay the loan and the dept grows over the ear into a large amount. In the case of Swapna credid played a negative role.