Collateral is a ____

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Detailed Solution

The collateral is an asset that the borrower owns, which may include land, buildings, vehicles, livestock, and deposits with the banks, and uses them as a guarantee to the lender till he repays the loan.
If the borrower fails to repay the loan, the lender gains full rights to the collateral and can sell it to get his repayment. For poor households in India, it is difficult to get cheap loans from the formal sector compared to the informal sector. This is because banks give loans based on collateral, and many poor households do not own any or enough assets to keep as collateral for loans with the banks.

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