Question

What are the differences between formal and informal sources of credit

Answer 1

What are the differences between formal and informal sources of credit?

S CHIRAG

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Formal sources:

(i) They follow those sources of credit, which are registered by the government and have to follow its rules and regulations.

(ii) RBI supervises the functioning of formal sources of credit.

(iii) They generally charge lower rates of interest.

(iv) Their main motive is social welfare.

Example: Banks and cooperatives.

Informal sources:

(i) These include those small and scattered units which are largely outside the control of the government.

(ii) There is no organisation which supervises the credit activities.

(iii) They charge much higher rates of interest.

(iv) Their main motive is profit-making.

Example: Moneylen

Answer 2

Formal credit-
1.richer people having assets which can be pledged as collateral
2. Rate of interest low
3.sources are banks and cooperative societies
Informal credit-
1. Poorer people not having assets which can be pledged.
2. Rate of interest is high.
3.sorces are traders , moneyender, landowners etc