Formal Sources of Credit
- According to the Reserve Bank of India, Formal sources of credit include financial organizations lending credit according to guidelines issued by RBI. Banks and cooperative societies are examples of Formal sources of credit.
- They are considered trustworthy sources for lending, and their products and services are appealing. They also offer online banking services that are convenient for customers.
- They have a lot of financial solutions and options at competitive rates. Thus, investors and businesses prefer formal sources of credit.
Informal sources of credit
- Informal sources of credit include money lenders who lend capital based on reliability factors. Landlords, traders, retailers, friends, and other sources of credit are also examples of this. However, their products and services lack transparency and accountability, unlike Formal sources of credit.
- They do not have a higher authority to supervise their actions and usually charge high rates of interest.
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