Answer:
A
number of borrowers have no collateral to pledge against loans, particularly
small farmers requiring crop loans. A collateral is an asset that the borrower owns
and pledges as a guarantee to the lender until the loan is repaid.
Repayment of such a loan is crucially dependent on the income from
selling the crop. Since there is a risk involved (in case the crop yield is
inadequate for any reason), banks are not willing to lend to such borrowers who
cannot pledge collateral, which can be sold to recover the loan amount in case
of default in paying the loan amount.
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