Question

Differentiate bw Formal and Informal sources of Credit

Answer 1

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.

 

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Answer 2

FORMAL SOURCES == the formal sources of credit includes resources which are controlled by government
ex..... BANKS, CO-OPERATIVES

INFORMAL SOURCES===the informal sources of credit includes resources which are not controlled by government
ex .....MONEY LENDERS, TRADERS,RELATIVES & FRIENDS