Distinguish between formal credit and informal credit ( 5 points)
Answers
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•We can get formal sector credit loans from Bank, LIC etc
•They are under the control of RBI
•If we don't pay the loan back the take legal action
•They give loan in reasonable interest
•Collateral is necessary
•This take more time for process
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INFORMAL SECTOR
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•We can get informal sector credit loans from Money lender, Trader, relatives etc
•They are not under the control of RBI
•If we don't pay back the loan they may take illegal action
•They give loan in high interest
•Collateral is not necessary ,it depends on the people's will and wish
•They actually don't take more time for the process
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Answer:
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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Explanation: