How does the demand for collateral affect poor person’s capacity to – InterviewSolution

1.	How does the demand for collateral affect poor person’s capacity to borrow?
Answer» Bank loans require collateral. Absence of collateral is one of the major reasons which prevent the poor from getting bank loans. In such cases, they approach the moneylenders. However, the moneylenders charge high interest rates. Finally the poor may be pushed into a situation from which recovery is very difficult. Hence the demand for collateral against loans may force the poor to approach informal sources.

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