Question

Choose the correct option related to sources of credit from the formal and informal sectors.

• A. Formal: Banks, cooperatives
• B. Informal: Local landlords, friends
• C. Formal: Friends, cooperatives
• D. Informal: Parents, banks

Answer 1

Answer: (A), (B)

Informal: Local landlords, friends

Formal sector credit is supervised by the government and the Reserve Bank of India (RBI). Banks and cooperatives come under the formal sector, as they are registered with the government. The RBI, directly or indirectly, supervises the functioning of the formal sources of loans.

The informal sector credit includes all those credit sources that do not have any organisation to supervise them. Loans from parents, local landlords, and friends are examples of informal sources of credit.