Social Science (087) — AI-generated practice question

Arun, owning 7 acres of land, can offer it as collateral to the nationalised bank, which is why he gets credit at a low 8.5% per annum. Shyamal, with only 1.5 acres, cannot provide adequate collateral to a formal bank, so he must borrow from an agricultural trader at a much higher 3% per month (36% per annum).

This reveals that collateral is a key condition for accessing formal credit. Borrowers who lack sufficient assets cannot approach banks and are forced into informal sources that charge exploitative interest rates, creating an unequal credit system where the poor pay more for loans.

Source: Chapter 3 – Money and Credit, "Example of a Village" and "Terms of Credit"

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• Examiners expect you to directly connect land ownership → collateral → formal/informal credit distinction.
• Name both interest rates (8.5% p.a. vs 3% per month) for full marks — the contrast is the evidence.
• The second paragraph must link collateral to inequality in credit access; this is the conceptual point the 3-mark question tests.
• Do not just describe the two farmers separately — the question asks you to explain the difference and reveal what it shows.