Chapter 3

NCERT
Class 10
Economics
Solutions
1. What are the differences between formal and informal sources of credit?

Question:

What are the differences between formal and informal sources of credit?

Answer:

Basis of Difference Formal Sources Informal Sources
Objective The objective of formal sources of credit is profit making as well as social concern. The objective of informal sources of credit is only for their own benefit.
Interest Loans from these sources are available at low interest rates. Loans from these sources are available at a higher rate of interest.
Conditions Formal sources of credit do not impose undue conditions on the borrowers. Informal sources of credit impose many stringent conditions on borrowers in
addition to high interest rates.
Registration Under the formal source, those sources of credit are included which are registered by the
government.
Informal sources include those small and scattered units that often control the
government.
Adherence to Rules
They have to follow government rules and
Regulations.
There are government rules and regulations for these too but they are not followed.
Committees Banks and co-operative
societies are included in the
formal sources of credit.
Informal sources of credit include moneylenders,
traders, employers, landowners, relatives and friends etc.
Functioning The Reserve Bank of India
monitors the functioning of
formal sources of credit.
In informal sources, there is no such organization which monitors the activities of the lenders.

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