Question

How do formal and informal sources of credit differ from each other?

Answer 1

Explanation:

Formal: controlled by RBI

have records

low interest rate on loan

want collateral

informal is opposite to this

Answer 2

Formal vs Informal credit

Explanation:

Formal credit:

1. Regulated by the RBI.
2. Maintain proper records.
3. Lower interest rates.
4. Loans may require collateral.
5. Banks and cooperatives.
6. Mostly sought after by the rich.
7. Extensive network in the urban areas; comparatively less in the rural areas.

Informal credit:

1. Not regulated by the RBI.
2. No proper maintenance of records.
3. Higher interest rates.
4. Sometimes loans do not require collateral and may lead to bonded labour.
5. Money lenders and pawn shops.
6. Mostly sought after by the poor.
7. Commonly found in the rural areas; comparatively less in the urban areas.