Question

Name two formal and informal sources of credit in india.state any three advantages of formal sources of credit

Answer 1

Credit is an agreement in which lender supplies the borrowers with money, goods and services in return for the promise of future payment.

There are a two main sources of credit in India.

(i) Formal sources - e.g. Banks, Cooperatives

(ii) Informal sources - e.g. Money lenders, traders.

The advantages of formal sources ofcredit are

(i) It provides loans at a fixed rates and terms.

(ii) It gives loans not just to profit-making businesses and traders but also to small cultivators, small-scale industries to small borrowers etc.

(iii) Cost of borrowing is less and hence promote borrowing and more economic growth.

(iv) There is no exploitation as in the case with the informal sectors.

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Answer 2

The two formal sources of credit in India are commercial banks and cooperative societies.

The two informal sources of credit in India are relatives and moneylenders.

The three advantages of formal sources of credit are as follows-

• The rate of interest charged by these formal sources is fixed by national institutions and is lower as compared to informal sources.
• All the terms related to repayment, ins-tallments, etc., are clearly stated and it prevents exploitation.
• There is no bias in giving out credit and they treat everyone's needs as important, from a poor laborer to a rich entrepreneur.