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

More than eighty per cent of the loans taken by poor people is from the informal sector. The credit activities of the informal sector should be discouraged because of the following reasons:

a. Informal money lenders charge a heavy rate of interest.

b. Poor people who borrow money at a higher cost have to shed a larger part of their earnings in repayment.

c. The rate of interest is too high that the interest alone exceeds multiple times of the principal and is greater than the income of the borrower.

Hence, to avoid the debt trap, these informal credit activities should be put to an end.