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What are the differences between formal and informal source of credit


Posted- 2132 days ago
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i a m sure its class X question.Just check out Economics text-book as u get full marks for the answer taken frm ur ncert text-book.

Well,formal sources of credit,like banks and cooperative societies, are the ones which provide credit or loans in a limited interest-rate(as guided by RBI)along with collateral and written agreements,while the informal ones do not sign any written agreement and usually charge high interest  rates. Relatives, traders, friends, etc are few informal sources of credit.

Unlike formal sources,informal sources can adopt unfair means to get their money back.

It is wise to take loans from formal sources than from informal.

 

formal sector includes banks etc.there is an organisation to superwise them.low rate of interest.collateral is needed.

informal sector includes friends,relatives etc.there is no organisation to superwise them.high rate of interest.no need of collateral.

 

formal

  1. it is organised
  2. it is supervised by the rbi
  3. it includes all the banks and corporations
  4. the loan is at low rate of intrestlike10% p.a.

informal

  1. it is unorganised
  2. it is not supervised by any athaurity
  3. it includes moneylenders ,traders etc.
  4. the loan is at high rate of intrest like4% per month
 

FORMAL SOURCES OF CREDIT:

                                              The sources of credit that we borrow from banks cooperatives or other governmental institutions are known as formal sources of credit.

It ask's for a collateral.

it is inspected by RBI.

It gives the credit with a low amount of interest.

INFORMAL SOURCES OF CREDIT:

                                               It is the credit taken from friends relatives or other non govermental sources.

It does not ask for any collateral.

It isnot inspected by any institution.

It gives the credit for a low amount of interest.

 

FORMAL SOURCE OF CREDIT

IT IS AN INSTITUTIONAL SORCE OF CREDIT.

IT CHARGES LOW RATE OF INTEREST.

CREDIT PROVIDED FROM BANK,OR FINANCIAL INSTITUTION.

INFORMAL SOURCE OF CREDIT.

IT IS AN PRIVATE SOURCE OF CREDIT.

IT CHARGES HIGH RATE OF INTEREST.

CREDIT PROVIDED FROM RELATIVES.