Question

Q-7. Name two formal and two informal sources of credit in India and state some advantages of formal sources

of credit.​

Answer 1

Answer:

There are a two main sources of credit in India. (ii) Informal sources - e.g. Money lenders, traders. (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.

Answer 2

Answer:

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Formal sources:

(i) They follow those sources of credit, which are registered by the government and have to follow its rules and regulations.

(ii) RBI supervises the functioning of formal sources of credit.

(iii) They generally charge lower rates of interest.

(iv) Their main motive is social welfare.

Example: Banks and cooperatives.

Informal sources:

(i) These include those small and scattered units which are largely outside the control of the government.

(ii) There is no organisation which supervises the credit activities.

(iii) They charge much higher rates of interest.

(iv) Their main motive is profit-making.

Example: Moneylenders, traders, employees, relatives and friends, etc.

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Explanation: