Assertion (A): Since informal sources of credit have rules and regulations to guide them, they often use immoral use of force to get back their money

Reason (R): Informal sources of credit charge a much higher rate of interest on loans

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Both (A) and (R) are true and (R) is the correct explanation of (A).

Both (A) and (R) are true but (R) is not the correct explanation of (A).

(A) is correct but (R) is wrong

(A) is wrong but (R) is correct

answer is D.

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Detailed Solution

(A) is wrong but (R) is correct.
Since informal sources of credit have no rules and regulations to guide them, they often use immoral use of force to get back their money. They may even impose conditions on people to pay back their money by hook or crook, even if a person is stuck in a debt trap due to the high-interest rates charged by informal sources of credit.
Informal sources of credit charge a much higher rate of interest on loans, anywhere from 3% to 5% per month than formal sources of credit do. This leaves the borrowers with less money to spend than what they earned from the borrowed amount.

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