(a) Informal sources of credit are moneylenders, traders, employers, relatives, friends etc. (b) There is no government or private organisation that manages or check the credit activities performed by informal sources.

Banks and cooperative societies constitute the formal sector of credit. Landlords, moneylenders, traders, relatives, friends and other sources of credit constitute the informal sector of credit. The credit activities of the formal sector are supervised by the Reserve Bank of India.

Formal sectors represent all jobs with specific working hours and regular wages and the worker’s job is assured. Conversely, informal or unorganized sectors are the ones where the employees or the workers do not have regular working hours and wages and are exempted from taxes.

Banks and cooperatives are the example of formal sources and moneylenders, traders, employees, friends and relatives etc are the example of informal sources.

(i) Most of the informal lenders charge a much higher interest on loans. Thus the cost to the borrower of the informal loans is much higher. (ii) Higher cost of borrowing means a larger part of earning of the borrowers is used to repay the loan and they have less income left for themselves.

i Most of the informal lenders charge a much higher interest on loans. Thus the cost to the borrower of the informal loans is much higher. ii Higher cost of borrowing means a larger part of earning of the borrowers is used to repay the loan and they have less income left for themselves.

Answer

• These institutions are regulated by the Reserve Bank Of India. Their rates of interest for loans are controlled.
• There is no exploitation by the lenders.
• Everyone can take a loan that includes big businessmen as well as the small cultivators or borrowers.
• The cost of borrowing is usually less.

Informal credits are supplied at little or no interest to farmers, local poor people and marginal professionals of various groups, relatives, and friends. Usually the traders, large landowners, and moneylenders dominate as the suppliers of informal credit.

The formal source of credit provide loans comparatively at the lower rate and collateral is required to obtain loan. It is supervised by RBI. It includes banks and cooperatives.

Informal source of Credit includes the credit from money lenders, friends, traders, employers and relatives. There are no rules and regulations of government are applied on these institutions. 2. These institutions charge very high interest rates.

Drawbacks of informal sources of credit

• Most of the informal lenders charge a much higher interest on loans.
• Thus the cost to the borrower of the informal loans is much higher.
• Higher cost of borrowing means a larger part of earning of the borrowers is used to repay the loan and they have less income left for themselves.

Disadvantages of Informal Sector employment: Little or no job security. Unprotected by labour laws. Odd working hours. No pension, insurance or health insurance scheme.

how to reduce dependence on informal credit sources ?

1. the formal sector like banks and cooperative should lend more to poor people and workers particularly in the rural areas.
2. the formal sector should provide cheap and affordable credit.
3. the formal sector should ensure that everyone receives loans.
4. providing self help groups bank linkage.

The informal sector lends at a very high rate of interest and use unfair means to get the money back. the loan. Hence, the borrowers have less income left for themselves. income of the borrower due to that there is always a risk for borrowers to fall in debt-trap.

Answer: Formal sources of credit gives money at less interest rates as compared to informal sector so the profit which the borrower earns is more. Answer: Formal sources of credit gives money at less interest rates as compared to informal sector so the profit which the borrower earns is more.

Answer. 1) They provide loans without any collateral. 2) Even if the previous loan is not paid then also the informal lender is willing to give them another loan. 3) People are not aware about formal sources of credit.

Informal lenders like money lenders know that borrower personally and hence, are often willing to give a loan without a collateral. v. The borrowers can if necessary, approach the money lenders even without repaying their earlier loans. 29.

Informal lenders are ones who are not regulated by the central bank such as RBI. Informal lenders give a loan at a higher rate. The local moneylenders, relatives, friends and finance companies that grant a loan to the people in need at higher interest rates are informal lenders.

The two categories of sources of credit are: Formal sources of credit. Informal sources of credit.

The Main Sources of Credit

• Friends and family. At first glance, the advantages can seem appealing: you can negotiate the interest rate and payment terms with them directly.
• Financial institutions.
• Retail stores.
• Loan companies.
• Yourself.
• Cheque cashing centres.

Sources of credit

• Licensed banks. Banks offer a variety of consumer credit services, including credit cards, mortgages and personal loans.
• Deposit-taking companies. Deposit-taking Companies (DTC) operate as subsidiaries of banks or associated companies.
• Money lenders.
• Regulation.

Called the five Cs of credit, they include capacity, capital, conditions, character, and collateral. There is no regulatory standard that requires the use of the five Cs of credit, but the majority of lenders review most of this information prior to allowing a borrower to take on debt.

The best practice for avoiding credit card fees and interest is to not spend money until you save enough to cover the purchase.

• Does Not Teach Self-Control.
• Means You Don’t Have a Budget.
• Interest Is Expensive.
• Rates Rise With Unpaid Balances.
• A Poor Credit Score Affects a Lot.
• Bad Habits Risk Your Relationships.

Financial institutions are among the best sources of credit, especially when it comes to personal loans, student loans, mortgages, personal lines of credit, overdraft protection and credit cards.

Nothing is likely to happen if you don’t use your credit card for a few months, as long as you make bill payments for any recurring monthly charges. The credit card’s issuer may decide to close your account after a long period of inactivity. You’ll also lose any rewards you’ve yet to redeem when your account is closed.

banks

The main sources of credit risk that have been identified in the literature include, limited institutional capacity, inappropriate credit policies, volatile interest rates, poor management, inappropriate laws, low capital and liquidity levels, massive licensing of banks, poor loan underwriting, reckless lending, poor …

The most common sources for business loans include large institutional banks, community banks and credit unions, credit cards, family and friends, and crowdfunding sources.

What are the major sources of consumer credit? Commercial banks, consumer finance companies, credit unions, life insurance companies, and federal savings and loan associations.

He uses the credit card to pay for goods and services, then he repays the credit card company at a future date.

• Noninstallment Credit. Noninstallment credit is either secured or unsecured, depending on the company offering the credit.
• Installment Closed-End Credit.
• Revolving Open-End Credit.