Question

Why formal sources of credit are beneficial as compare to informal sources?

Answer 1

Formal sources of credit are beneficial as compared to the informal sources, in the sense that they provide credit at reasonable rates without any undue exploitative practices as faced under informal sources of credit. For instance, taking credit from informal sources can have serious repercussions in the form of exorbitant rate of interest, high mortgage obligations, etc. Formal sources of credit are organised and from such exploitative practices.