What is a loan from a money lender is classified as an?

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Formal loan

Informal loan

Any of the two

None

answer is B.

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Detailed Solution

A loan from a money lender is classified as an informal loan.
The informal sector of credit is made up of landlords, moneylenders, and other sources of credit. This industry's credit activities are only motivated by profit at much higher interest rates. A borrower with a high-interest rate will have to spend more money to repay the loan and have less money left over for personal use. Additionally, it creates a debt trap. While the poor still rely on loans from the unofficial sector that carry higher interest rates, the rich currently have more access to cheaper credit from the formal sector. The cheaper distinction is crucial for a nation's development. Since the legal industry has more readily available credit, it must extend credit to more and more people, particularly in rural areas.

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