Manav needs a loan to set up a small business. Manav will decide on whether to borrow from the bank or the moneylender on the basis of various factors:
(i) Firstly, he must have a collateral or asset which can guarantee his loan. If he lacks such an asset, he cannot get a loan from the bank. In this scenario, he will have to go to a moneylender, even though the latter charges a higher interest rate.
(ii) Secondly, if Manav is not aware of the banes of borrowing from the informal sector, he might not even consider taking a bank loan.
(iii) Thirdly, if there are no banks in or near his area of residence or work place, then he will borrow from a moneylender.
