Productive Purposes – Loans
When the banks and financial institutions gives loans and cash advance to the different sections of customers it should be ensured by them that the loan is used by the customers only for productive purposes. Loans to customers for non productive purposes and speculative purposes should not be given or encouraged by the banks and financial institutions. Although the earnings from the non productive purposes and speculative purpose might be higher that the productive purposes still the banks and the financial institution should ensure that the loan given to the customers are meant only for productive purposes. The banks and financial institutions should also ensure that the loans are given to a large number of customers instead of concentrating only on select customers in a geographic area. By spreading the loan base to different customers, the bank and financial institutions diversify the risk and ensure that there is less risk of the loan going bad. The banks or financial institions can ensure that there is less risk of giving loans to the different customers by ensuring that that there will be no default on account of lack of liquidity and lack of willingness to pay on the part of the borrower.