What are the differences between formal and informal sources of credit?
1) 1. Sources : The sources of formal credit are - Commercial banks and Cooperative banks. The sources of informal credit are - friends & relatives, and Money lenders.
2. Rate of Interest : The rate of interest in formal sector is lesser than in informal sector.
3. Collateral : Collateral is required for borrowing from the formal sector while there is no requirement of collateral in informal sector.
4. Debt Trap : In case of formal sector there is less chance of getting into debt trap which means, to repay one loan, the borrower has to take another loan whereas there are maore chances of it in the formal sector.
5. Supervision : The formal sector is supervised by RBI while in the case of informal sector, there is no supervisor.
6) Dependence: Rich urban households depend on formal sectors of loan whereas poor households depend on informal sectors of loan. THIS IS ACTUALLY FROM MY ECO PROJECT THAT 'S WHY THE FONT IS LIKE THIS... I M SORRY ABOUT THE FONT