Question

Write the difference between formal and informal sources of credit or loans.

Answer 1

Answer:

The difference between formal and informal sources credit are tabulated below.

Formal sources of loans	Informal source of loans
The formal sources of loans that the government registers are followed by laws and regulations.	The informal sources include all small and scattered units that are generally beyond the government’s control, they must obey its laws and regulations.
Social welfare is the primary motive for formal sources.	The profit-making is the primary motive for informal sources.
The RBI regulates the activities of formal credit sources.	There is no organization that controls credit activities in informal sources.
Formal sources typically charge lower interest rates.	They charge much higher interest rates for informal sources.
Examples: Banks and cooperatives	Examples: Moneylenders, merchants, workers, relatives and friends etc.

Articles to Explore:

1. Majority of the credit needs of the _________________households are met from informal sources.
2. Why do we need to expand formal sources of credit in India?