Question

Krish was not able to get a loan from the bank as he lacked collateral. However, his neighbour lent him the required amount even without a collateral. If informal loans are readily available, then why are they not recommended?

• A. Banks depend on loans for income
• B. Very high rates of interest
• C. Harassment of borrowers
• D. No records of transactions

Answer 1

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

No records of transactions

People usually opt for informal credit if they lack collaterals, which are demanded by banks. However, moneylenders charge very high interest rates, keep no records of the transactions, and harass the poor borrowers. These are heavy burdens and can push borrowers into a debt trap.