IDs and Paired-Concept Questions

Question

Examlex · Accepted Answer

The Answer is Shallow Finance:
Shallow finance refers to a situation where financial services and products are limited in depth and breadth within a financial system. This means that there is a lack of variety in financial instruments, limited access to capital, and insufficient financial infrastructure to meet the diverse needs of consumers and businesses. Shallow finance can be a significant barrier to economic growth and development, as it restricts the ability of individuals and enterprises to save, invest, and protect themselves against risks. It often results in higher costs of borrowing, limited access to credit, and a greater reliance on informal financial mechanisms.

Informal Credit Market:
The informal credit market is a component of the financial system that operates outside the formal, regulated banking and financial institutions. It includes a variety of non-institutionalized lending and borrowing activities, such as moneylenders, pawnbrokers, friends, family, and other community-based financial arrangements. Informal credit markets often provide access to credit for individuals and businesses that are unable to meet the requirements of formal financial institutions, such as having a credit history or collateral. However, these markets can also be characterized by higher interest rates, lack of consumer protection, and the potential for exploitative practices.

Relationship between Shallow Finance and Informal Credit Market:
The relationship between shallow finance and the informal credit market is closely intertwined. When a financial system is shallow, it means that formal financial services are not meeting the needs of a significant portion of the population. This gap in services often leads individuals and businesses to seek credit from informal sources. As a result, the informal credit market thrives in environments where shallow finance is prevalent because it fills the void left by the formal sector.

Moreover, the existence of a large informal credit market can be both a symptom and a cause of shallow finance. It is a symptom because it indicates that the formal financial sector is not adequately serving the needs of the population. It is a cause because the prevalence of informal credit can discourage the development and deepening of formal financial services, as people may become reliant on informal mechanisms and the formal sector may see less demand for its expansion.

In summary, shallow finance and the informal credit market are related in that the limitations of the former often lead to the expansion of the latter. To improve economic development and financial inclusion, efforts are typically made to deepen financial markets and bring more services into the formal sector, thereby reducing the reliance on informal credit sources.

IDs and Paired-Concept Questions

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