Question

Diferentiate Dependence on formal and informal sector for credit​

Answer 1

Formal sector- The rate of interest is very high. Informal- The rate of interest is very low. ... Informal- Relative,money lender and land lords are main source of informal credit.

Answer 2

Formal sources:

1.These sources of credit are registered by the government and have to follow its rules and regulations.

2.RBI supervises the functioning of formal sources of credit.

3.They generally charge lower rates of interest.

4.Their main motive is social welfare.

Example: Banks and cooperatives.

Informal sources:

1.These include those small and scattered units which are largely outside the control of the government.

2.There is no organisation which supervises the credit activities.

3.They charge much higher rates of interest.

4.Their main motive is profit-making.

Example: Moneylenders, traders, employees, relatives and friends, etc.

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