why does a village moneylender charge high rate of interest
Answers
Explanation:
An inescapable cycle of debt continues to grip rural India, particularly its farming class. Yet the public image of menacing debt collectors does not reflect the actual plight of India’s three million farmers. The rapacious moneylender, who plugs the huge gaps in credit supply in a hassle-free process, is an inalienable part of a rural family.
He is the first port of call in a distress situation, and is also the man they can turn to in times of need. For most villagers there is no life without him. Moneylenders have been around for generations, but their business has boomed ever since India’s economic priorities shifted, with globalisation, from agriculture to industry. An ancient Indian proverb has it: a village can be formed wherever there come together “a river, a priest, and a moneylender”.
Answer:
Thus moneylenders' principal is always at much higher risk than any bank's. Seen in the light of higher risk,moneylenders have to charge higher interest rates. Giving moneylenders bank credit is unlikely to increase their outreach, since they are reluctant to lend to unknown parties.