Question

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

Answer 1

Formal sector:-

• Cooperative societies.
• Banks

Advantages:-

• Unlike the informal lenders, formal sector loans should charge less interest on loans.
• Supervision is required as it requires plenty of process.
• No exploitation and debt trap.

Informal sector:-

• Village moneylenders.
• Relatives

Answer 2

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.

________________________________________________________