Mohan works at a construction site in a sub-urban area while Sudhir is a marketing manager in a company. Both want credit to buy a home. Who has more possibility of getting a loan from the formal sector?

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Sudhir

Mohan

Both will not get any loan

Both will get loans

answer is A.

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Detailed Solution

Sudhir has more chances of getting a home loan from the formal sector.
The formal sector consists of banks and cooperatives, which require collateral and other documentation to make loans. In that case, Sudhir can provide the necessary documentation such as employment records, salary slips, and other documents that are needed by the banks. Banks also require collateral as security. Sudhir can provide that security as he is economically stable and if he fails to repay, then the bank can retain the ownership paper of the house as collateral security. Since Sudhir has a fixed income, he is more likely to repay the loan at the preferred time, while Mohan is not able to provide collateral or any documents. Thus, Mohan has to depend on informal sources of credit.

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