What are the two sources of credit? Which is the main informal source of credit for rural households in India?

The two sources of credit/loans are–

a. Formal sector loans(banksandcooperatives)

b. Informal sector loans

Money lenders are the main source of informal credit. Other forms of credit for rural house holds are traders, employers, friends, relatives, etc.

Money lenders charge a very high rate of interest and are not governed by any rules, such as those for banks and cooperatives in the formal sector.This often leads to borrowers being worse off after taking loans, and cancause them to fall into a debt-trap.