disadvantages of informal sectors of credit
Answers
Formal sources of credit
Banks and cooperatives are the formal sources of credit.
Advantages
1. These institutions are regulated by the Reserve Bank Of India. Their rates of interest for loans are controlled. The rates and terms are fixed.
2. There is no exploitation by the lenders.
3. Everyone can take a loan that includes big businessmen as well as the small cultivators or borrowers.
4. The cost of borrowing is usually less.
Disadvantages
1. The procedure to get the loan is time consuming.
2. They require collateral security.
Informal sources of credit
Landlords, traders, moneylenders, employers, friends and relatives are informal sources of credit.
Advantages
1. No external control over the lending practices.
2. Suitable for poor households.
Disadvantages
1. The interest rates can be very high.
2. The lenders can use unfair means to get the money back.
Click to let others kn
Read more on Brainly.in - https://brainly.in/question/4348829#readmore
Drawbacks of informal sources of credit
- Most of the informal lenders charge a much higher interest on loans.
- Thus the cost to the borrower of the informal loans is much higher.
- Higher cost of borrowing means a larger part of earning of the borrowers is used to repay the loan and they have less income left for themselves.