Question

State the difference between Formal and Informal form of credit

Answer 1

Answer:

Formal sources usually charges lower rates of interest whereas in informal sources they charge much higher rates of interest. ... Banks and cooperatives are the example of formal sources and moneylenders, traders, employees, friends and relatives etc are the example of informal sources.

Explanation:

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.

Explanation: