In situations with high risk credit might create further problems for the borrower explain
Answers
Answer:
The situations with high risks, credit might create further problems for the borrower:
(i)The borrower had to pay interest on principal as well as on interest to lenders.
(ii)The lenders can go against the default borrower in the court to recover his principal amount and interest thereupon.
(iii) Sometimes, the lender can sell the security or the assets as collateral pledged with the banks or co-operative society or any informal agency of credit.
hope it helps..
Question: Why do banks and cooperative societies need to lend more?
<or>
Why do we need to expand formal sources of credit in India?
<or>
Describe the bad effects of informal sources of credit on borrowers. In situations with high risks, credit might create further problems for the borrowers. Explain.
<or>
Describe the importance of formal sources of credit in the economic development.
Answer:
There is no organisation with supervises the credit activities of lenders in the informal sector...
They charge whatever interest rates they want...
There is no one to stop them from using unfair means to get their money back...
The high interest rate for borrowing leads to increased debt, and eventually, the situation of a debt trap...
Thus, it is necessary that banks and co-operatives increase their lending, particularly in the rural areas, so that the dependence on informal sources of credit reduces. Cheap and affordable credit is crucial for the country's development...
Let us take the case of a farmer. If he has to take a loan from a lender for crop production, and due to certain unavoidable factors there is a crop failure, then he will not be able to repay the loan...
Now either the farmer has to take a fresh loan, or sell some portion of his land, for instance, to repay the loan...
Thus, in high risk situations credit may create further problems for the borrower just as the farmer has fallen into the situation of a debt trap...
____________________________________________________
<Judge It Yourself...>
Hope it helps you! ヅ
✪ Be Brainly ✪