why are service conditions of formal sector loans better than informal sector? explain
Answers
Answer:
Formal sector is better than informal sector because of the following ways:-
Formal Sector Loans :
Formal sector loans include loans from banks and cooperatives. Features of formal sector loans are :
(i) Formal sectors provide cheap and affordable loans and their rate of interest is monitered by RBI.
(ii) Formal sector strictly follows the terms of credit which includes interest rate, collateral, documentation and the mode of repayment.
Informal Sector Loans :
Informal sector loans include loans from moneylenders, traders, employers, relatives, friends etc. Features for informal sector loans are :
(i) Their credit activities are not governed by any organisation, therefore they charge higher rate of interest.
(ii) Informal sector loan providers know the borrowers personally, and hence they provide loans on easy terms without collateral and documentation.
Explanation:
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Service conditions of formal sector loans better than the informal sector:
- Under the supervision of the Reserve Bank of India, the formal sector advances work.
- The interest rate is slow.
- The principal sources of formal credit are business banks and helpful social orders.
- They provide ensured administrations and have a specified procedure for credit exercise redemption.
- The terms of credit in the formal sector include the loan fee, guarantee and documentation requirements, and the manner of repayment.
- Credit terms vary widely, beginning with one credit course of action and progressing to the next.
- They may change based on the loan specialist's and the borrower's ideas.