Step 1: Collateral is an asset that the borrower owns - such as land, a building, a vehicle, livestock or deposits with banks - and uses as a guarantee to a lender until the loan is repaid. Step 2: If the borrower fails to repay the loan, the lender has the right to sell the asset or collateral to obtain payment. Step 3: Therefore the purpose of collateral is to secure the loan, i.e. to protect the lender against the risk of non-repayment. Step 4: This is also why lenders such as banks ask for collateral, and why the poor, who have no collateral, find it difficult to get formal loans. Step 5: Hence the answer is Option (B).