ANSWER : Informal sources of credit, like moneylenders or unregistered lenders, can have harmful effects on borrowers:
No Legal Protection: Borrowers have no legal recourse in case of disputes, which increases their financial insecurity and can worsen poverty.
High Interest Rates: They often charge very high and arbitrary interest rates, leading to a debt trap.
Lack of Regulation: There is no government control, so borrowers are vulnerable to exploitation and unfair practices.
