Question

Mention the differences between formal and informal sources of credit. ?​

Answer 1

The main motive of formal sources is social welfare whereas the main motive of informal sources is profit-making. Banks and cooperatives are the example of formal sources and moneylenders, traders, employees, friends and relatives etc are the example of informal sources.

Answer 2

Answer:

People obtain loans from various sources. The various types of loans are grouped as formal sector loans and

informal sector loans.

Formal Source:

(i) These include loans from banks and cooperatives.

(ii) The Reserve Bank of India supervises the functioning of formal sources of loans.

(iii) The rich households avail cheap credit from formal lenders.

Informal Source:

(i) It includes moneylenders, traders, employers, relatives and friends, etc.

(ii) There is no organisation which supervises the credit activities of lenders in the informal sector. Compared to the formal lenders, most of the informal lenders charge a much higher interest on loans.

(iii) The poor households to pay a heavy price for borrowing from informal sources.

Explanation: