Question

Why does the formal or informal sector ask for a collateral against loans?

Answer 1

Answer:

They demand collateral against loans because:

1. Every loan agreement specifies an interest rate which the borrower must pay along with the the principal.

2. A collateral serves as a guarantee until the borrower repays the loan.

3. Interest rate, collateral and documentation requirement and the mode of repayment are the terms of credit required by formal or informal sectors for loans.

Answer 2

Answer:

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COLLATERAL :

IT IS A GAUNRANTEE THAT THE PERSON TAKING THE LOAN WILL REPAY IT AND THIS IS KEPT AS COLLETRAL .

BECAUSE :

• IT IS GAUNRANTEE THAT THE LIAN TAKER WILL REPAY THE LOAN WITH INTEREST .
• IF AT THE HE IS UNABLE TO PAY THE COLLATRAL IS KEPT WITH THE LENDER.

HOPE THAT HELPS