Explain informal and formal sources of credit (with examples)
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Answers
landlords moneylenders traders relatives friends and other sources of credit constitute the informal sources of credit. the formal sources provide only marginally more credit than the informal.
Hii there!
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.
Hope this would help you.
And sorry for not able to give the answer in tabular form.