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