Krishna is working in a neighbouring field with very less wages. Expenses on sudden illnesses or functions in the family are also met through loans. The landowner charges an interest rate of 5 per cent per month. At present, she owes the landowner ` 5,000.
Analyse the credit arrangements given above.
The given credit arrangement would leave Krishna worse off because his earning is very low and she has taken loan from the informal sector. The landowner i.e. a source of credit in the informal sector is charging a very high rate of interest.
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