Question

Give your views on the following:

Margin Requirement

Answer 1

Margin requirement is a credit control tool used by the central bank to regulate the amount of loans that can be granted against securities. By changing the margin, the central bank can control how much credit banks can give. If the margin is increased, borrowers get a smaller loan against the same security, reducing credit in the economy. It is mainly used to control credit flow into specific sectors and to prevent over-borrowing and speculation.