Question

What are the differences between formal informal sources of credit?

Answer 1

Answer:

In the formal source of credit we can put

10000 below rupees

but in the informal source of credit we can put 10000 above rupees

Answer 2

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$\rm{\boxed{Formal\: Credit:}}$

• Formal credit providers follow certain rules and regulations framed by RBI.

• When the borrower could not repay as per the agreed terms, formal credit provider cannot use any illegal ways to get back the credit.

• Formal letters charge a lesser interest on loans.

• The rich households are availing cheap credit from formal lenders.

• Ex:- Loans from banks and cooperatives.

$\rm{\boxed{Informal\: Credit:}}$

• Informal credit providers do not follow such government rules.

• Informal credit providers use many coercive and illegal ways.

• Informal lenders charge a much higher interest on loans.

• The poor household have to pay a heavy price for borrowing from informal sources.

• Ex: Loans from money lenders,traders, employers,relatives and friends etc...

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