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.

Chapter 3