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What are the two different credit situations?

Credit arrangements can be divided into two categories. These are as follows:

i) Formal Sector- It includes banks and cooperatives that extend loans to households for entrepreneurship and other personal needs. The rates of interest charged by them are low.

ii) Informal Sector- It includes moneylenders, traders, employers, relatives and friends. The moneylenders generally charge at a higher rate of interest.

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Two types of credit

1 Formal 

2 Informal

credit very often pushes the borrower into a painfull situstion of repay of loan with an interest , and the condition become more worst then before .


But in some cases it lead to profit and development  
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Two types of credit situation are:

1.one where the credit proves to be useful for the borrower and leads to increase in his earnings and therefore becomes better off than before.

2.second case is where the credit instead of helping out the borrower pushes him into debt trap and leaves him worse off than before.

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