What do you mean by 'debt-trap'? Why is it more rampant in rural areas

1.	What do you mean by 'debt-trap'? Why is it more rampant in rural areas?
Answer» Debt-trap is a situation in which a person after taking a loan is not able to pay back the loan. It is more common in rural areas because (i) A borrower repays a loan by selling the agricultural produce, which sometimes may not be enough to repay the loan. (ii) Rural borrowers normally depend on informal sources of credit who charge a high rate of interest. This repayment of larger amounts may sometimes be larger than their income. Thus, it can be concluded that loans from banks always help to raise people’s earning capacity.

What do you mean by 'debt-trap'? Why is it more rampant in rural areas?

Answer»

Debt-trap is a situation in which a person after taking a loan is not able to pay back the loan.

It is more common in rural areas because

(i) A borrower repays a loan by selling the agricultural produce, which sometimes may not be enough to repay the loan.

(ii) Rural borrowers normally depend on informal sources of credit who charge a high rate of interest. This repayment of larger amounts may sometimes be larger than their income.

Thus, it can be concluded that loans from banks always help to raise people’s earning capacity.

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