Question

Most of the agricultural labourers like mohan depend upon loans fron informal sector. Which of the following statement about this sectors is correct -
A:- There are govt. bodies to supervise informal sector.
B:- Money lenders ask for a responsable rate of interest.
C:- Cost of informal loans to the borrower is quite high.
D:- Money lender use fair means to get their money back.​

Answer 1

Answer:

c.is correct

Explanation:

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Answer 2

" Option C) Cost of informal loans to the borrower is quite high ".

Explanation:

• Compared to formal lenders, most of the informal lenders charge a much higher interest on loans and there is no one to stop them from using unfair means to get their money. Thus the cost of the borrowing of informal loans is much higher.

• For the average applicant, taking up a high cost loan causes a permanent and immediate decline on the credit score, and in future leads to more default and credit rationing by standard lenders.

• Formal sources are government authorised to follow a limited rules and regulations about the loan interest. But the informal scale loan sources are not to follow the rules and limitations about the loan interest.

• That is why the informal loan sources are mostly costlier than the formal and authorised sources.

Here,

• There are no government to regulate the sector, that is called the informal sector as the lenders are not registered with the government and they give out loans on a personal basis and usually minimal paperwork is involved.

• Money lenders normally not used fair means to get their money back, many times they may employ the borrower as a cheap labourer in their fields thus saving a lot of money on workers.