Question

“The credit activities of the informal sector should be discouraged.” Imagine yourself

to be farmer, Support the statement with arguments​

Answer 1

Explanation:

The credit activities of the informal sector should be discouraged because:

. 85% of loans taken by the poor households in the urban areas are from informal sources.

. Informal lenders charge very high interest on their loans.

. They try to charge more and more interest on their loans.

. There are no boundaries and restrictions.

. Higher cost of borrowing means a larger part of the earnings of the borrowers is used to repay the loan.

. In certain cases, the high interest rate for borrowing can mean that the amount to be repaid is greater than the income of the borrower.

. This could lead to increasing debt and debt trap, therefore the credit activities of the informal sector should be discouraged.