Question

Differentiate between Formal sector of credit and Informal sector of credit

Answer 1

Formal sources follow the sources of credit that are registered by the govt. and have to follow its rules and regulations whereas in informal sources include those small and scattered units which are largely outside the control of the government.

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Answer 2

Answer:

Explanation:

• Formal sources follow the sources of credit that are registered by the govt. and have to follow its rules and regulations whereas in informal sources include those small and scattered units which are largely outside the control of the government.

• Formal sources follow the sources of credit that are registered by the govt. and have to follow its rules and regulations whereas in informal sources include those small and scattered units which are largely outside the control of the government.

• RBI dominates the functions of formal sources of credit but in informal sources there is no organisation that dominates the credit activities.

• Formal sources usually charges lower rates of interest whereas in informal sources they charge much higher rates of interest.

• 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.