Question

Q. Why are formal sources of credit preferred over the informal source of credit? Give three reasons.

Answer 1

Formal sources of credit prefer over informal because final sources comprises of government organizations and collateral security, lower interest rates on its loans like co- operative bank & RBI but Informal sources comprises higher Interest on its loans does not provide collateral security & no organisation to supervise this sector ex- friends,relatives,money landers & etc.

Answer 2

Answer:

Formal sources of credit preferred over Informal sources of credit because:

i. Formal sources have low cost of borrowing

ii. Higher Income through cheap borrowing

iii. No exploitation and debt trap.

iv. Any other relevant point.