Given that a large number of people in our country are poor, does it in any way affect their capacity to borrow?

How Poverty Affects Borrowing Capacity:

1. Irregular Income: Poorer individuals often have unstable or low incomes, making it difficult to meet formal lenders’ income criteria for borrowing.

2. Lack of Assets: They may not possess valuable assets to use as collateral for loans, a requirement by formal lenders, limiting their borrowing capacity.

3. Documentation Challenges: Limited access to formal documentation like stable income proofs or credit records reduces eligibility for loans from regulated lenders.

4. Limited Access to Formal Credit: Geographical isolation, lack of awareness, or discrimination restricts access to formal financial services, reducing borrowing opportunities.

5. Reliance on Expensive Informal Credit: Due to restricted access to formal credit, they might turn to informal sources like moneylenders, facing higher interest rates and debt traps.

Understanding these challenges helps recognize the barriers faced by poorer individuals in accessing fair and affordable credit.