Question

differentiate between the formal and informal sources of credit

Answer 1

Hi frand,

Formal source of credit:

 

a)   Loans that are given by banks and co-operative

institutions are called Formal sector of credit.

b)   The functioning of these banks and co-operative

institutions are supervised by Reserve Bank of India – RBI.

c)   These institutions are required to report to

the RBI the rate of interest, amount lending, etc.

d)   Borrower is required to submit collaterals and

documents.

 

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.

d)   Borrower is not required to submit collaterals

and documents.

-zeezee

Answer 2

Hy dear here is your answer

Formal sources:
(i) They follow those sources of credit, which are registered by the government and have to follow its rules and regulations.
(ii) RBI supervises the functioning of formal sources of credit.
(iii) They generally charge lower rates of interest.
(iv) Their main motive is social welfare.
Example: Banks and cooperatives.

Informal sources:
(i) These include those small and scattered units which are largely outside the control of the government.
(ii) There is no organisation which supervises the credit activities.
(iii) They charge much higher rates of interest.
(iv) Their main motive is profit-making.
Example: Moneylenders, traders, employees, relatives and friends, etc.

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