Question

differentiate between formal and informal sources of credit?
5 or more points

pls answer fast ​

Answer 1

Answer:

1) Formal sector of credit includes Commercial banks, Grameen banks, Cooperative societies,etc. who provides loans to farmers and needed ones. Informal sector includes moneylenders, traders, relatives, employers, friends who provide loans.

2) There is no organisation which supervises the credit activities of lender in informal sector. however, Reserve Bank of India supervises formal sector and issues guidelines.

3) Compared to formal lenders, informal lenders charge a much higher interest and put other terms on borrowers . Thus the cost to the borrower of informal loans is much higher. This may put them into debt trap and poverty cycle.

4) Informal lenders adopt unfair means to get their money back. On the other hand, bank follows only legal procedures and often farmers loans are write off as well..

5) Cheap and affordable credit is crucial for country's development, and hence formal sector also helps in the development of nation.

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Answer 2

Informal source of credit: a) Loans that are given by money lenders, friends and relatives are called Informal source of credit. b) They are not supervised by Reserve Bank of India – RBI. c) They can lend money at any interest rate and use any means to get back their money.