What are the two categories of sources of credit? Mention 4 features of each.

Credit can be broadly categorized into two types:

1. Formal Credit
2. Informal Credit

Formal credit services are provided by banks and cooperatives while source of informal credit can be relatives, moneylenders, employers etc.

Formal Credit carry low rate of interest. Informal credit carries higher rate of interest as it involves higher risk.

Formal credit is advanced after a lot of formalities and documentation. Proper verification is carried out to check credibility of the borrower. Informal credit involves lesser formalities but higher rate of interest.

Formal credit is accessible to urban and rich households whereas informal credit service is used by poor and rural household due to lack of banks and cooperatives in rural sector.