In situations with high risks, credit might create further problems for the borrower

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#1

In situations with high risks, credit might create further problems for the borrower. Explain.


#2

This statement is true if we take an example of a small farmer who has taken a loan to meet cultivation expenses.
In case the crop fails due to inadequate rain, pest attack or any other reason, he will not be able to repay the loan and may have to sell part of his land for repaying the loan. Thus, this situation is a high risk situation, depending entirely on a good crop.