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

FORMAL SOURCE OF CREDIT

informal source of credit: Loans that are given by money lenders, friends and relatives are called Informal source of credit.

The functioning of these banks and co-operative

institutions are supervised by Reserve Bank of India – RBI.

These institutions are required to report to

the RBI the rate of interest, amount lending, etc.

Borrower is required to submit collaterals and  documents.

INFORMAL SOURCE OF CREDIT

Loans that are given by money lenders, friends

and relatives are called Informal source of credit.

They are not supervised by Reserve Bank of

India – RBI.

They can lend money at any interest rate and

use any means to get back their money.

Borrower is not required to submit collaterals

and documents.