Question

Q.Difference between formal source of credit and informal source of credit??

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Answer 1

$\huge \boxed{hey \: mate}$

$\huge \mathfrak \red{answer - }$

$\huge \mathfrak \blue{formal \: source \: of \: credit}$

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.

$\huge \mathfrak \green{informal \: source \: of \: credit}$

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.

$\huge {hope \: it \: helps \: u}$

Answer 2

$\sf{\large {\underline {FORMAL \:SOURCE\:OF\:CREDIT}}}$ :

⚫The formal source of credit are such loans which are taken either from the banks or the cooperatives.

⚫In formal source of credit, there is no exploitation in the transaction of loans.

⚫The formal sector loans form 52% of the total loans.

⚫If the loan is taken from bank, the rate of interest is usually low.

$\sf{\large {\underline {INFORMAL \:SOURCE\:OF\:CREDIT}}}$ :

⚫Informal source of credit are those which are taken from money lenders, traders, employers, relatives and friends.

⚫In the informal sector, the trader would desire to buy the produce at a low price and hence, will exploit the creditor.

⚫The informal source of credit form 48% of the total loans.

⚫In informal, the rate of interest is quite high.

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