Q1. [3] medium thorough-understanding
Rama, a landless agricultural labourer, borrows from her employer-landowner at 5% per month to meet household needs. Despite repaying regularly, she finds her total outstanding debt growing each season. Identify the feature of this credit arrangement that makes it exploitative, and explain how it traps the borrower over time.
Generated by claude-sonnet-4-6 · 2026-06-26 13:24 · grounding rag
Model Answer
The exploitative feature is the very high interest rate of 5% per month (60% per annum) charged by the landowner-employer, who is also Rama's only source of credit.
This traps Rama because: her irregular income as an agricultural labourer is insufficient to clear both principal and interest. She must take fresh loans before repaying old ones, so outstanding debt keeps compounding each season. Additionally, her dependence on the landowner for both livelihood and credit gives her no alternative, forcing her to continue working for him on his terms — a classic debt-trap.
Source: Chapter 3, Variety of Credit Arrangements — Rama's case
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Explanation
- 1 mark — identifying the exploitative feature (5% per month = 60% p.a., informal/unregulated lender who is also the employer).
- 2 marks — explaining the debt-trap mechanism: compounding debt due to fresh loans before old ones are cleared, no collateral/alternative source, dependence locks her in.
- Examiners expect you to name the feature precisely and then show the process by which debt grows — don't just say "high interest"; explain why it keeps growing season after season.
- The term debt-trap should appear in your answer.