What is Credit? Why is cheap and affordable credit important for the country’s development? Give four reasons.

Credit refers to an agreement in which a lender supplies the borrower with money, goods or services in return for the promise of future payment.

Cheap and affordable credit is important for development:

1. Less income: If the interest is too high, then much of the income of a person would go to repay the credit. This would mean less income would be left to the person to spend or invest.

2. Debt trap: Sometimes the interest rate is so much that the repayment amount is higher than income. This forces the person to lend more and they fall into a debt trap.

3. Lack of money to start venture: If the lending rate is too high, it discourages people from borrowing to start a venture and they end up not investing in a business.

4. Expanding production: If the credit is cheap, then people can lend for a variety of reasons and this shall give them a way to increase production like buying a new piece of land.

Note:

Credit or loan is an essential facility especially for people with small income. If the interest rates are high, the whole benefit of loans is lost to the consumer. For the development of the people, credit should be affordable or else it would only lead to poor becoming poorer and rich becoming richer.