How is formal source of credit better than informal sources?
Answers
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☆These sources of credit are registered by the government and have to follow its rules and regulations.
☆RBI supervises the functioning of formal sources of credit.
☆They generally charge lower rates of interest.
☆Their main motive is social welfare.
Example: Banks and cooperatives.
Informal sources :-
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☆These include those small and scattered units which are largely outside the control of the government.
☆There is no organisation which supervises the credit activities.
☆They charge much higher rates of interest.
☆Their main motive is profit-making.
Example: Moneylenders, traders, employees, relatives and friends, etc.
Hope it helps☺☺
Regard
@Yusuf
Answer:
Formal source of credit:
(a) Loans that are given by banks and co-operative institutions are called Formal sector of credit.
(b) The functioning of these banks and co-operative institutions are supervised by Reserve Bank of India- RBI.
(c) These institutions are required to report to the RBI the rate of interest, amount lending, etc.
(d) Borrower is required to submit collaterals and documents.
Informal source of credit:
(a) Loans that are given by money lenders, friends and relatives are called Informal source of credit.
(b) They are not supervised by Reserve Bank of India - RBI.
(c) They can lend money at any interest rate and use any means to get back their money.
(d) Borrower is not required to submit collaterals and documents.
Explanation: