Question

What are informal sectors of credit?its disadvantages

Answer 1

Formal sources of credit
Banks and cooperatives are the formal sources of credit.
Advantages
1. These institutions are regulated by the Reserve Bank Of India. Their rates of interest for loans are controlled. The rates and terms are fixed.
2. There is no exploitation by the lenders.
3. Everyone can take a loan that includes big businessmen as well as the small cultivators or borrowers.
4. The cost of borrowing is usually less.
Disadvantages
1. The procedure to get the loan is time consuming.
2. They require collateral security.
 
Informal sources of credit
Landlords, traders, moneylenders, employers, friends and relatives are informal sources of credit.
Advantages
1. No external control over the lending practices.
2. Suitable for poor households.
Disadvantages
1. The interest rates can be very high.
2. The lenders can use unfair means to get the money back.

Answer 2

informal sources are those sources of credit which includes money lenders traders large farmers friends relatives etc
there are disadvantages of informal sources of credit which are as follows :
1) they can charge high interest rate on loans comparative to formal sources
2) they can use on fair ways to get their money back
3) no one is there to supervise The functioning of these sources