Choose the given statement that is true/false.

The lending rate is very high under formal sources of credit.

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True

False

answer is B.

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Detailed Solution

The above statement is false.
In urban areas, poor households borrow money from informal sources 85% of the time. Any organization does not regulate the lending practices of informal lenders. The interest rates charged by unregulated lenders are incredibly high. Since there are no limitations or guidelines, they attempt to charge increasing amounts of interest on their loans. Higher borrowing costs mean a more significant portion of the borrowers' income is used to repay the loan. In some circumstances, a high-interest rate on loan may result in a repayment obligation that exceeds the borrower's income.
The correct statement is the lending rate is very high under informal sources of credit.

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