Question

Why is it easy to take loans from informal sector

Answer 1

The higher interest rate of borrowing can mean that the amount to be repaid is greater than the income of the borrower ininformal sector. It can be easily exchanged with any commodity or service. It solves the problem of double coincidence of wants. It makes economic activities quite independent from each other.

Answer 2

People tend to take loans from informal sector because:-

1) They provide loans without any collateral.

2) Even if the previous loan is not paid then also the informal lender is willing to give them another loan.

3) People are not aware about formal sources of credit.

Hope it helps