Question

Given that a large number of people in our country are poor, does it in any way
affect their capacity to borrow?​

Answer 1

Answer:

Indeed, since a large number of people in our country are poor, it affects their capacity to borrow.

• Banks provide credit to people after analysing their employment records and repaying capacity.
• For this certain procedures of the banks need to be followed.
• Banks demand collateral for the grant of a loan.
• Since most people in our country are poor, they won't have any collateral with them.
• This will force them to lend loans from Informal sources such as employers, friends, relatives, moneylenders, traders etc.
• These sources charge a very high rate of interest and use unfair means and cheat the borrowers to get their money back.
• A large part of the borrower's earnings is used to repay the loan. A borrower may also fall into a debt trap.
• This leads the poor person worse off than before.