Question

differentiate between formal and informal sources of credit
with example​

Answer 1

Answer:

The main motive of formal sources is social welfare whereas the main motive of informal sources is profit-making. Banks and cooperatives are the example of formal sources and moneylenders, traders, employees, friends and relatives etc are the example of informal sources.

Answer 2

Answer:

Formal sources of credit :

It charges less rate of interest compared to informal sources of credit.

If the loan is not repayed they can sell the given collateral

They do not use unfair means to get the money back.

Example - banks and cooperatives.

Informal sources of credit :

It charges a high rate of interest.

If loan is not repayed it leads to a debt trap.

They may use unfair means to get the money back.

Example - money lenders, traders, relatives etc.