Question

When does credit push the borrower into debt trap explain with the help of an example

Answer 1

Answer:

In situation with high risks credit might create problems and pushes the borrower into a debt-trap. He is much worse off than before. For example crop production involves high costs on inputs such as fertilizers pesticides water etc. Farmers generally take loans at the beginning of the season and repay the loan after harvest. But the failure of the crop makes loan repayment impossible. They have to sell part of the land to repay the loan or a fresh loan may be required to repay the previous loan and the borrower may find himself caught in a vicious circle and recovery from such a situation is very painful.

Answer 2

Answer:

• In situation with high risks credit might create problems and pushes the borrower into a debt-trap. He is much worse off than before.

• For example crop production involves high costs on inputs such as fertilizers pesticides water etc.

• Farmers generally take loans at the beginning of the season and repay the loan after harvest. But the failure of the crop makes loan repayment impossible.

• They have to sell part of the land to repay the loan or a fresh loan may be required to repay the previous loan and the borrower may find himself caught in a vicious circle and recovery from such a situation is very painful.