Question

Write a note on formal and informal sources of credit

Answer 1

formal sources of credit are those sources which are regulated by the RBI (Reserved Bank of India)..they charge a low rate of interest..they make sure that every person gets benefited from the loan..they have to maintain a record about to whome they are giving loan and on what basis are the lians given... eg-banks,cooperatives...

informal sources of credit are tbose sources which are not regulated by any one...they charge a high rate of interest which leads to debt trap...they do not keep any record about the loans...if the loans are not repaid they may misbehave with the creditor...eg-moneylenders,landowners,relatives,traders....

Answer 2

Answer:

Formal source of credit:

(a)  Loans that are given by banks and co-operative institutions are called Formal sector of credit.

(b)  The functioning of these banks and co-operative institutions are supervised by Reserve Bank of India- RBI.

(c)  These institutions are required to report to the RBI the rate of interest, amount lending, etc.

(d)  Borrower is required to submit collaterals and documents.

Informal source of credit:

(a)  Loans that are given by money lenders, friends and relatives are called Informal source of credit.    

(b)  They are not supervised by Reserve Bank of India - RBI.

(c)  They can lend money at any interest rate and use any means to get back their money.

(d)  Borrower is not required to submit collaterals and documents.

Explanation: