Aman is a farmer with limited land in a village in India. His son is a brilliant student and has completed his higher secondary with distinction. Aman wants his son to pursue higher studies. He needs to take loan for it. He is advised to approach a formal credit source.

Who should he approach for funding of the college fee?

Moneylender

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Relatives

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Banks

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Friends

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Solution

The correct option is C Banks
Friends, relatives, and moneylenders are all informal sources of credit. Informal sources offer credit without collateral but charge high interest rates. A bank is a formal source of credit. Banks offer education loans to students, provided the proper documentation is presented. Formal sources of credit offer loans with a set terms of credit.

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