Question

How does the demand for collateral effect upon persons capacity 2 borrow

Answer 1

Answer:

Since the poor people do not have a collateral to offer, they have a poor chance of borrowing. Also, they cannot get any loans or credit from formal sources of credit like co-operatives or banks. So, they prefer to take loans from known people like friends, relatives, money lenders etc.

Explanation:

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Answer 2

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1. Bank loans require collateral.
2. Absence of collateral is one of the major reasons which prevent the poor from getting bank loans.
3. In such cases, they approach the money lenders.
4. However, the money lenders charge high interest rates.
5. Finally the poor may be pushed into a situation from which recovery is very difficult.
6. Hence the demand for collateral against loans may force the poor to approach informal sources.