Describe the positive role of credit with examples.

Two different credit situations where credit plays a positive and a negative role are as given below:

(i) Credit and a positive role: A traders obtains credit to meet the working capital needs  of production. The credit helps him to meet the one going expenses of production, complete production on time and thereby increase his earnings. Thus he is  a able to repay the loans that the had borrowed in time. In such a  situation credit plays a positive role and the borrower is able to improve his condition.

(ii) Credit and a negative role: A farmer takes a loan to meet the expenses of cultivation hoping that there would be goods harvest and he would repay the loan. The harvest, however, fails and the farmer is unable to repay the loan. Next year again he takes loan but the crop is not good and loan repayment can not be made. The borrower has no option but to sell a part of his land to pay off the loan. Loan/credit instead of helping the farmer improve his condition left him worse off. He falls into dept-trap. Credit in this case pushes the borrower into a  situation from which recovery is very painful. Thus, in one situation credit helps to increase earnings and person  is better off than before. In the second situation credit pushes the person into a debt trap and he has to sell a part of his land.