Question

‘Expanding access to loans in the formal sector is important, yet it is equally critical that these loans are accessible to all people for national development.’ Justify the statement.

Answer 1

• Higher cost of borrowing from informal sources means a larger part of the earnings of the borrowers is used to repay the loan. Hence, borrowers have less income left for themselves (as we saw for Shyamal in Sonpur).
• 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.
• This could lead to increasing debt (as we saw for Rama in Sonpur) and debt traps.
• People who might wish to start an enterprise by borrowing may not do so because of the high cost of borrowing.
• For these reasons, banks and cooperative societies need to lend more. This would lead to higher incomes, and many people could then borrow cheaply for various needs.
• They could grow crops, do business, set up small-scale industries, etc. They could set up new industries or trade in goods. Cheap and affordable credit is crucial for the country’s development.