Question

why are formal sources of credit are preffered over informal credit sources ?

Answer 1

formal sector of credit are generally preferred for. taking loans bcoz it has the following features
. it provides loans at reasonable rate of intrest.
. there are less chances of manipulation.
. the lenders here do not exploit the borrower .
.

Answer 2

In formal sources there is high rate of interest.Due to which people cant pay back.And if they can't pay back then there property will be seized.It also requires some security assets which poor people don't have.So there they face lots of problems so they prefer informal sources like friends,relative,etc. It doesnt require any think it is based on mutual trust

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