Question

How is borrowing from a moneylender different from banks?

• A. Loans from banks is not supervised by any organisation.
• B. Moneylenders charge a exhorbitant interest rate.
• C. Moneylenders lend money without a collateral.
• D. Banks verify various documents before lending money.

Answer 1

Answer: (B), (C), (D)

Banks verify various documents before lending money.

Both banks and moneylenders are sources of credit. Banks belong to the category of formal sector credit, whereas moneylenders belong to the category of informal sector credit. Banks have lower rates of interest but demand a collateral. Moneylenders do not require collateral but charge exorbitantly high interest rates.