Question
Manav needs a loan to set up a small business. On what basis will Manav decide whether to borrow from the bank or the moneylender? Discuss.
Solution
Manav will decide to borrow from the bank or the moneylender on the following basis:
(i)Difference between rate of interest charged by formal and informal sources at the desired time.
(ii)Perusal upon terms of credit viz. paper work, security, collateral etc. made necessary by respective sources.
(iii)Mode of payment viz. size of instalment, frequency (monthly, quarterly, half-yearly or annually) or full repayment at the end of certain period i.e. two years, three years and so on. Apart from this his own capacity to repayment after thorough analysis of information collected.
