Question

Identify the correct source of formal and informal credit.

• A. Formal sector loans: Banks, cooperatives
  Informal sector loans: Employers, traders
• B. Formal sector loans: Employers, traders
  Informal sector loans: Banks, cooperatives
• C. Formal sector loans: Employers, cooperatives
  Informal sector loans: Banks, traders
• D. Formal sector loans: Friends, relatives
  Informal sector loans: Banks, cooperatives

Answer 1

The correct option is A Formal sector loans: Banks, cooperatives

Informal sector loans: Employers, traders
The Reserve Bank of India supervises the functioning of the formal sources of loans, whereas loans from the informal sector are not supervised. That is why lenders can charge any interest rate they deem fit. Also, if the loan is not repaid, they might use unfair means to get their money back. The interest rate charged by the informal lenders are comparatively higher than that charged by the formal sector.