Distinguish between formal and informal sources of credit. Give a five

1.	Distinguish between formal and informal sources of credit. Give a five points.
Answer» Informal sector or source: ◆Includes moneylenders, traders,employers,friends and relatives. ◆No collateral is required. ◆Repeated borrowing can lead to debt trap. ◆They impose very tough and sometimes even unreasonable terms of credit on borrowers. ◆There is no organisation which supervises its functioning. Formal sector: ◆Includes banks and cooperatives.◆Banks require collateral and proper documentation for getting a loan. ◆A reasonable charge of intetest is charged. ◆Terms of credit are fair and reasonable.◆The reserve bank of India supervises its functioning.

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