Question

explain the difference between formal and informal sources of credit

Answer 1

FORMAL SOURCES OF CREDIT:

1.Includes banks and cooperatives.
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2.Requires collateral and documents.

3.Reasonable rate of interest is charged.

4.They have objective of social welfare.

5.Terms of credit are fair and reasonable.

6.RBI supervises its functioning.

____________

INFORMAL SOURCES OF CREDIT:

1.Includes moneylenders,traders,friends and relatives.

2.No collateral required.

3.Repeated borrowing can lead to debt trap.

4.Their only motive is to extract profit as much as possible.

5.Terms of credit are unreasonable.

6.Banks do not supervise.



Hope it will help you.

Answer 2

Formal source of credit are given by banks informal source of credit are given by money lenders or friends

In informal source high rate pf interest is taken and in formal low rate of interest is taken

Collareral is needed in formal source but in informal no collateral is needed

Formal sorce of credit is monitored by reserve bank of india and in informal souce of credit no one is there to monitorize...