Amrita is a government employee and belongs to a rich urban household ...
Amrita, a government employee who belongs to a rich urban household would be successful in getting a loan from a formal source as compared to Rani who comes from a poor household and works as a helper on a construction site. This is because there are certain terms of credit which need to be fulfilled in the formal sector
1. Collateral - It is an asset that the borrower owns (exampleland, building, livestock, vehicles etc.) and uses as a guarantee to a lender until the loan is repaid. If the borrower fails to repay the loan, the lender can obtain his payment by selling that particular asset.
2. Documentation - A formal source of credit functions according to certain rules and regulations. In extending loans. they demand a set of formal documents of the borrower for identity and security purposes. The interest rate charged on loans along with the mode of repayment is also specified in formal documents.
3. Financial Capability - The formal source of credit needs to ensure the financial independence of the borrower. The poor often fail to get loans from these sources because of the lack of various terms of credit.
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Amrita is a government employee and belongs to a rich urban household ...
Amrita:
- Stable job: Amrita is a government employee, which indicates a stable and secure source of income. This stability increases the likelihood of her being able to repay the loan.
- Good credit history: As a government employee, Amrita is likely to have a good credit history, which is an important factor considered by formal lenders when assessing loan applications. A good credit history demonstrates responsible financial behavior and increases the chances of loan approval.
- Higher income: Being from a rich urban household, Amrita likely has a higher income compared to Rani. This higher income can help her meet the eligibility criteria set by formal lenders and make it easier for her to repay the loan.
- Collateral: Amrita may have valuable assets or property that can be offered as collateral for the loan. Collateral provides security to the lender, reducing the risk associated with lending money. This can increase the likelihood of loan approval for Amrita.
Rani:
- Loan purpose: Rani's crisis at home might be urgent and require immediate financial assistance. If she can clearly explain the purpose of the loan and demonstrate how it will be used to address the crisis, formal lenders may consider her application sympathetically.
- Informal sources: Rani's limited access to formal financial institutions due to her rural background and occupation as a construction site helper might have forced her to rely on informal sources of credit in the past. If she can provide evidence of successfully repaying informal loans, it can indicate her creditworthiness and increase the chances of loan approval.
- Government schemes: There are various government schemes and initiatives aimed at promoting financial inclusion and providing loans to individuals from marginalized sections of society. Rani's poor rural background and occupation as a helper on a construction site might make her eligible for such schemes, increasing her chances of obtaining a loan from a formal source.
- Local community support: Rani's close-knit rural community might be willing to vouch for her credibility and repayment capacity. If she can gather recommendations or references from trusted members of her community, it can enhance her chances of loan approval.
Conclusion:
While Amrita's stable job, good credit history, higher income, and collateral increase her chances of getting a loan from a formal source, Rani's urgent need, successful repayment of informal loans, eligibility for government schemes, and local community support can also work in her favor. Ultimately, the decision to approve a loan depends on the specific criteria and policies of the formal lender, as well as the ability of the applicants to meet those criteria and demonstrate their creditworthiness.
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