Credit Arrangements for Krishna's Expenses

Introduction:
Krishna is a worker who is employed in a neighbouring field and receives very low wages. In order to cover the expenses for sudden illnesses or family functions, she has to rely on loans. The landowner, from whom Krishna borrows money, charges an interest rate of 5 percent per month. Presently, Krishna owes the landowner a total of rupees 5000. This credit arrangement has both advantages and disadvantages for Krishna.

Advantages of the Credit Arrangement:
1. Immediate Financial Assistance: The credit arrangement allows Krishna to meet her financial needs promptly, especially during times of unexpected expenses or family functions. She can borrow money from the landowner and fulfill her obligations without delay.

2. Flexible Repayment Options: The landowner provides flexibility in terms of repayment. Krishna can negotiate the repayment schedule based on her income and financial capabilities. This allows her to manage her finances more effectively.

3. No Collateral Required: Unlike traditional loans that often require collateral, Krishna can borrow money from the landowner without pledging any assets. This makes it easier for her to access credit and fulfill her immediate financial requirements.

Disadvantages of the Credit Arrangement:
1. High Interest Rate: The landowner charges a high interest rate of 5 percent per month. This adds a significant financial burden on Krishna, as she has to repay the borrowed amount along with the accumulated interest. The high interest rate makes it challenging for Krishna to break free from the cycle of debt.

2. Increased Dependency: Relying on loans to cover everyday expenses creates a sense of dependency on the landowner. Krishna becomes trapped in a cycle where she constantly needs to borrow money to meet her financial obligations. This dependency can hinder her financial growth and independence.

3. Debt Accumulation: Continuous borrowing can lead to a build-up of debt for Krishna. If she is unable to repay the borrowed amount and the accumulating interest, it can result in a debt trap, making it difficult for Krishna to break free from the cycle of borrowing.

Conclusion:
The credit arrangement provided by the landowner offers immediate financial assistance to Krishna for meeting her urgent expenses. However, the high interest rate and the dependency on loans pose significant challenges for her financial well-being. It is essential for Krishna to explore alternative sources of income or financial support to reduce her dependency on loans and improve her overall financial stability.

I wrote in exam .that he had took credit in informal sector