AI-generated practice question — model-generated for extra practice, not a previous-year CBSE board question.
Collateral is an asset (such as land, building, or livestock) that a borrower provides as a guarantee for a loan. Poor people often do not own such assets. Since banks require collateral before sanctioning loans, the poor are unable to meet this condition and are denied access to formal bank credit.
Source: Terms of Credit, Chapter 3; Self-Help Groups for the Poor, Chapter 3
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The examiner expects two points: (1) define/explain what collateral is, and (2) link its absence to why the poor are excluded from bank loans. Avoid writing about SHGs or moneylenders unless the question specifically asks — keep the answer focused. The phrase "one of the major reasons which prevents the poor from getting bank loans" from the passage is the key idea to anchor your answer.