Question

what are the difference between formal and informal sources of credit?EXPLAIN (don't spam)please give good answer

Answer 1

FORMAL-

1)Includes banks, cooperatives etc

2)Charges very low interest rate.

3) Requires documental work and

collateral.

4) doesn't give another loan if

previous one is pending.

5) Mostly taken by rich households

INFORMAL-

1)Includes money lenders, landlords etc.

2)Charge very high interest rates

3)Doesn't require collateral at times.

4)Can take another loan without paying the previous one.

5)Mostly taken by poor households.

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Answer 2

Formal source of credit :-

i) It includes local banks,commercial banks,national banks.

ii)Formal source of credit is supervised by RBI

and have some restrictions. That they cannot

exploit poor people by charging high interest.

rate on loans etc.

iii) Formal source of credit charges less interest

rate on loans and gives extra money during

withdrawal of money from bank. Mostly to

those who have bank balance.

iv) Formal source of credit asks for terms of

credit which mainly includes collateral,

documents etc.

v) Formal source of credit are not present in

rural areas.

INFORMAL SOURCE OF CREDIT :-

i)It mainly includes friends, relatives ,

moneylendors etc.

ii) It is not supervised by anyone and doesn't

have any restriction.

iii) It charges high interest rate on loans

exploiting people.

iv) It doesnt ask for any collateral or terms of

credit the only thing you must have is

relation.

v) They are found both in rural as well as urban

areas.

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