What is debt trap why it is more important in rural areas?
Answers
It is more common in rural areas because
(i) A borrower repays a loan by selling the agricultural produce, which sometimes may not be enough to repay the loan.
(ii) Rural borrowers normally depend on informal sources of credit who charge a high rate of interest. This repayment of larger amounts may sometimes be larger than their income.Thus, it can be concluded that loans from banks always help to raise^people’s earning capacity.
Answer:
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Explanation:
Debt Trap: Debt trap is a condition where the credit pushes the borrower into a situation from which the recovery is very painful, it is called debt trap. Here the borrower fails to repay the borrowed money to the lender and he has to sell his small portion of land to repay the loan. It is rampant in rural areas because of the following reasons:
1. Rural areas small farmers give preference to the informal sources to take loan. The interest rates if these sources are very high.
2. Farmers take loan for crop production, equipment, fertilizers. If crop fails due to any reason they become unable to pay back the loan.
3. There is unusually absence of any kind of support to the farmers in case of crop failure.
4. The main source of their income is production of crops. If it fails than they don’t have any other source of income from which they can repay their borrowings.