Question

Why are formal sources of credit preferred over the informal sources of credit? Give 3 reason.

Why are formal sources of credit preferred over the informal sources of credit? Give 3 reason. 16 W hv sources credit p' .l'e.rred ovev the Ilit/.rnlai ot

Answer 1

★It is based on RBI guidelines.
★It takes a reasonable rate of interest.
★It takes less time and take collateral.

Answer 2

1. Interest charged in the formal sources are lesser than the informal sources

2. They are authorised and managed by RBI so that the banks don’t make any profit

3. There are lesser chances of debt trap.