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