Question

The credit activity of informal sector should be discouraged. Explain the statement

Answer 1

Ur Answer;

credit activities of the informal sector shouldbe discouraged because(a) 85% of loans taken by the poor households in theurban areas are from informal sources.(b) Informal lenders charge very high interest ontheir loans.(c) There are no boundaries and restrictions.

(d) Higher cost of borrowing means a larger part ofthe earnings of the borrowers is used to repay theloan.

(e) In certain cases, the high interest rate forborrowing can mean that the amount to be repaidis greater than the income of the borrower.(f) This could lead to increasing debt and debt trap,

therefore the credit activities of the informalsector should be discouraged.