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Social Science: Money and Credit: Role of Money in an Economy - Formal Institution - Nationalized Commercial Bank

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ConceptFormal Institution - Nationalized Commercial Bank

Question

"The credit activities of the informal sector should be discouraged." Support the statement with arguments.

Solution

The credit activities of informal sector should be discouraged due to the following reasons.
 
1. The credit activities of lenders of informal sector are not supervised by any organisation.

2. Informal lenders provide loans to borrowers at exorbitant rates of interest and traps them in a debt-trap.

3. Moneylenders and landlords keep illiterate farmers in the dark and extract more than the amount given on loan.

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Solution Concept: Formal Institution - Nationalized Commercial Bank.
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