Question

Answer the following question.
Why is cheap and affordable credit important for the country's development? Explain any three reasons.

Answer 1

Cheap and affordable credit is essential for a country's development as it is a catalyst for encouraging entrepreneurship and self-employment. It encourages people to start their own business, small-scale industries gives a boost to the economy and prevents people from getting caught in a debt-trap. It enables people to borrow for meeting their various requirements and is of particular benefit to those engaged in agriculture. It also means that a larger part of the borrower's earnings can be reinvested in the economy rather than repayment.

Credit plays a crucial role in a country’s development. By sanctioning loans to developing industries and trade, banks provide them with the necessary aid for improvement. This leads to increased production, employment, and profits. However, caution must be exercised in the case of high risks so that losses do not occur. This advantage of loans also needs to be manipulated and kept under an administrative hold because loans from the informal sector include high-interest rates that may be more harmful than good. For this reason, it is important that the formal sector gives out more loans so that borrowers are not duped by moneylenders, and can ultimately contribute to national development.