Explain the pattern of distribution of formal and informal sources of credit among various sections of society
Answers
INFORMAL FINANCIAL SECTOR FORMAL FINANCIAL SECTOR
1. The informal financial sector provides 1. Formal financial institutions ignore small
savings and credit facilities for small farmers, lower-income households, and small-
farmers in rural areas, and for lower- scale enterprises in favour of a larger-scale,
income households and small-scale well-off, and literate clientele which can
enterprises in urban areas. satisfy their stringent loan conditions.
2. The procedures of informal schemes are 2. Complex administrative procedures are beyond
usually simple and straightforward; as the understanding of the rural masses and small
they emanate from local cultures and savers.
customs, they are easily understood by
the population.
3. The informal sector mobilises rural 3. Formal financial institutions do not mobilize
savings and small savings from low-income rural savings or small-scale deposits. Commercial
urban househods. banks could contribute to rural and small savings
mobilization if they had adequate branch networks
and if they adopted the relevant procedures.
4. Informal groups operate at times and on 4. The working days and opening hours of formal
days which are convenient for their financial institutions do not take rural work
members. schedules into account;banks are oopen at times when
farmers are at work in their feilds.