Question

mention three points of difference between formal sector and informal sector loans

Answer 1

Formal Sector Loans: Include loans from banks  and cooperatives. Features of formal sector

Loans are :

(i) Formal sectors provide cheap and affordable  loans and their rate of interest are monitored by  Reserve Bank of India.

(ii) Formal sector strictly follows the terms of credit, which includes interest rate,  collateral, documentation and the mode of repayment.

Informal Sector Loans : Include loans from  moneylenders, traders, employers, relatives,  friends, etc. Features for informal sector loans are:

(i) Their credit activities are not governed by any  organisation, therefore they charge higher rate  of interest.

(ii) Informal sector loan providers know the  borrowers personally, and hence they provide  loans on easy terms without collateral and  documentation.

Answer 2

Answer:

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Explanation:

formal sector as activities which are taxed and monitored by the government and the activities involved are included in the Gross Domestic Product(GDP). In contrast to formal economy is the informal sector which is neither taxed nor included in the GDP and Gross national product (GNP) of a country.