“The credit activities of the informal sector should be discouraged”

CBSE Class 10 CBSE Class 10 Social Science
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1

“The credit activities of the informal sector should be discouraged”. Support the statement with arguments.

2

MOST of the informed lenders higher interest on loans. The cost to the borrower of informal loans is higher.

  • Higher cost of borrowing means a larger part of the earnings of the borrowers is used to repay the loan.
  • In certain cases, the high interest rate for borrowing can mean that the amount to be repaid is greater than the income of the borrower.
  • 85 per cent of loans taken by the poor households in the urban areas are from informal sources.
  • This could lead to increasing debt and therefore the credit activities of the informal should be discouraged.