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Answer the following question.
Explain the importance of 'collateral'.
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Solution
Collateral refers to an asset that a borrower uses as a guarantee to secure a loan. The lender has the right to sell the collateral to obtain payment in case the borrower defaults on the loan and fails to pay it.
Concept: Informal Institutions - Local Money Lenders, Landlords, Self Help Groups, Chit Funds and Private Finance Companies
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