Question

Distinguish between formal sector loan and informal sector loan

Answer 1

$\textbf{Answer is in Attachment !}$

Answer 2

Answer:

Explanation:

Informal source of credit:

1. There is no organisation which supervise the credit activities of lenders in the informal sector .

2. Rates of interest are not fixed money lenders can charge whatever interest rate they choose .

3. They give loans to small cultivators only to earn profit. This is no one to stop them from using unfair means to get their money back.

4. The informal lenders includes money lenders ,traders, employers, relatives and friends .

Formal source of credit:

1. The Reserve Bank of India supervises the functioning of formal sources of loans .

2. They provide loans at fixed ratea and terms .

3. They give loans not just to profit making businesses and traders but also to small cultivators, small scale industries to small borrowers,etc.

4. Bank and cooperatives come under the category of formal source of credit