Why interest is paid or charged
- Reward for savings that is, interest is paid to reward those who postpone their consumption to the future.
- It is paid to reverse the positive time preference of individuals that is, it is paid to encourage individuals to save.
- It is charged for management that is, it is paid to meet the expenses of the lending institution. For example files, stationery, manpower etc.
- It is paid for use of loanable funds.
- It is a charge for inconvenience to cover the opportunity cost of lending.
- It is a charge for risk taking for example parting with cash involves the risk of losing it.
CATEGORIES Economics
TAGS Dr. Bbosa Science
