Question

How is borrowing from a moneylender different than borrowing from banks?

• A. Moneylenders charge a higher interest rate.
• B. Banks charge a higher interest rate.
• C. Moneylenders require a collateral.
• D. Banks require a collateral.

Answer 1

Answer: (A), (D)

Banks require a collateral.

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.