Manav needs a loan to set up a small business. On what basis will Manav decide whether to borrow from the bank or the moneylender? Discuss.
Manav will decide whether to borrow from the bank or the moneylender based on the terms of credit. This includes the interest rate and the requirement of collateral. Banks require proper documents and collateral (an asset like land or building) as security. If Manav lacks collateral, he might choose a moneylender, as they often know borrowers personally and are willing to lend without collateral.
Manav must also consider the cost of borrowing. Bank loans generally have lower interest rates, whereas informal lenders often charge high interest rates that can increase the debt-burden. Finally, he will consider the ease of access, as getting a loan from a bank is much more difficult than from informal sources.
Explanation
The answer is derived from the 'Terms of Credit' and 'Self-Help Groups for the Poor' sections. The text explains that loans require interest and collateral. It highlights that banks require documents and collateral, which acts as a barrier for the poor. In contrast, moneylenders offer loans without collateral due to personal knowledge but often lead to high debt-burden (implied by 'costs of borrowing' in Q12). The distinction between formal (bank) and informal (moneylender) sources regarding collateral and documentation is the primary basis for Manav's decision.