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Describe the vital and positive role of credit with examples.
Answer:
Answer to be written:
- Credit (loans) refers to an agreement between lender and borrower , in which the lender supplies money , goods or services to the borrower in return for the promise of future payment .
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Credit plays a vital or positive role as
- Credit can be helpful to start businesses , increase income , and support families for people from different walks of life.
- In some cases, a loan may be of great help in building a house and getting relief from the monthly rent.
- Others find it helpful in raising their standard of living .
For example,
- Salim, a shoe manufacturer, received an advance order of 3000 pairs of shoes from a large trader to be delivered in a month. To complete the production, Salim has to hire a few more workers for stitching and pasting and he has to purchase raw materials too. To cover all these expenses, Salim obtains two loans .
- First, he asked his leather supplier to supply leather now and promises to pay him later .
- Second, he asked the large trader for an advance payment of 1000 pairs of shoes in cash.
- At the end of the month, Salim was able to deliver the shoes and made a good profit and was able to pay back his loan .
- Here credit helps Salim to meet the production expenses and he was able to complete the production on time and thereby increase his earnings .
- Therefore, credit played a positive role for Salim and helped him in increasing his earnings .
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