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

Q.:- What are the differences between formal and informal sources of credit?

 

Answer:-

 

Points on Which Different Formal Sources of Credit Informal Sources of Credit
Borrower’s capability

 

Richer people having assets which can be pledged as collateral Poorer people not having assets which can be pledged
Rate of interest Reasonably low Very high
Sources

 

Banks   and   co-operative societies

 

Traders,moneylenders, landowners, etc
 

Action on default of payment

 

Collateral can be confiscated and sold to recover the loan

 

 

Borrowers can be made as bonded labourers or made to part with land owned by them