The credit activities of the informal sector should be discouraged

• Money & Credit (C10)

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

Answer

Credit Activities of the informal sector should be discouraged:

1. Most loans from informal lenders carry a very high interest rate and do little to increase the income of the borrowers.

2. The poor households have to pay a large amount for borrowing

3. 85% of the loans taken by poor households in the urban areas are from informal sources.

4. Cheap and affordable credit is crucial for the country’s development.