The absence of ____ is one of the major reasons why the poor find it difficult to get loans from banks.

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The absence of collateral is one of the major reasons why the poor find it difficult to get loans from banks. Collateral can be defined as an asset that the borrower owns and uses as a guarantee to a lender till the loan is paid off. The asset can be land or investment with banks. The asset is sold, and proceeds are used to obtain payment if the borrower fails to repay the loan. In the case of poor people, they find it difficult to arrange for collateral. This is the main reason a poor household is unable to get a loan from banks or any formal source. They have to turn to informal sources that exploit them by charging high rates of interest.

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