Choose if the given statement is true/false.

The credit from the informal sector is not good for borrowers as they charge a very high rate of interest and there is no external control over the lending practices.

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True

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Detailed Solution

The statement is true.
The credit from the informal sector is not good for borrowers as they charge a very high rate of interest and there is no external control over the lending practices. A large part of the income of borrowers goes to interest payments, which results in the debt trap. This leads them into the vicious cycle of poverty as they have to then take another loan for the repayment of the previous one. Rich moneylenders and traders are considered the informal sources of credit, and they borrow their land or houses as collateral, which results in the loss of their assets too.

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