Question

Mention four characteristics each of the formal
and informal sector of credit.​

Answer 1

Features of formal sources of credit are :

(a) Formal sources of credit are provided by banks and cooperative societies to the borrowers.

(b) Reserve Bank of India (RBI) governs the functioning of formal source of credit. RBI periodically checks the interest rate and other details of these sources.

(c) They follow proper terms of credit which includes collateral, documentation, rate of interest and mode of repayment.

(d) They provide cheap and affordable credits with common terms of credit for all.

Features of informal sources of credit are :

(a) Informal sources of credit are moneylenders, traders, employers, relatives, friends etc.

(b) There is no government or private organisation that manages or check the credit activities performed by informal sources.

(c) Their terms of credit are flexible for the personal benefit of the lenders and condition of borrowers.

(d) They generally charge higher rates of interest and exploit the borrowers for their own benifits.

Answer 2

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