There are different types of financing facilities available to people, like banks, financial institutions, money lending, peer-to-peer lending, etc. It is correctly stated that countries have a strong network of banking systems to cater to the financial needs of their people. Some time ago, it was highlighted that banks are not accessible to the poor section of society. If the financial systems in both countries are strong, then why is there a need for money lenders? Some sections of society are inaccessible to approaching banks for their financial needs, and that’s where money lenders provide them with credit to cater to their financial needs. This article provides a general overview of money lenders’ versus other sources of finance.
Who are the money lenders?
Money lenders are people or small groups of individuals who provide short-term cash to small sections of society and charge a high rate of interest. The rate of interest on loans is usually higher than the band and financial institutions because the risk involved in providing credit is also high. In India, you can often hear the title called sahib, sethji, maalik, etc. Sometimes, they provide loans against gold, silver, food grains, etc. Money lenders provide loans for short-term periods and have less borrowing power. For more information click good at money lending in toa Payoh.
Money lender versus other sources of funding
It is not wrong to say that financial institutions like banks and NBFCs (Non-Banking Financial Institutions) provide loans to individuals at a low rate of interest and with high borrowing power, whereas money lenders provide loans at a high rate of interest with limited borrowing power. Money lenders provide loans with less paper work, whereas banks and other financial institutions provide loans with a lot of documentation and paper work. The loans which are provided by money lenders are not secure, whereas those provided by banks and financial institutions are secure.
Money lenders are not a centralised body, whereas banks and financial institutions are a centralised body which is registered with appropriate authority. Peer-to-peer lending is also a source of finance that is available that does not require much documentation and provides loans at a low rate of interest as compared to money lenders.
Money lenders are individuals or small groups of individuals who provide short-term credit at a high rate of interest to members of society who do not have access to the financial institutions’ facilities. There are various types of credit opportunities available to an individual, like banks, financial institutions, P2P lending, etc. Borrowers should avail credit after weighing all the pros and cons of all the available sources of finance.