Explain the term debt-trap. Why is it more rampant in rural areas? Give two reasons.
Debt-trap is a situation in which a person after taking a loan is not able to pay back the loan.
It is more common in rural areas because
(i) A borrower repays a loan by selling the agricultural produce, which sometimes may not be enough to repay the loan.
(ii) Rural borrowers normally depend on informal sources of credit who charge a high rate of interest. This repayment of larger amounts may sometimes be larger than their income.
Thus, it can be concluded that loans from banks always help to raise^people’s earning capacity.