What are the two categories of sources of credit? Mention four features of each.
The two sources of credit are:
Formal Credit:
1. It’s provided by banks and cooperatives.
2. Reserve Bank of India regulates the functioning of the formal sources of credit like the interest rate
3. The banks have to give RBI all the information regarding the lending processes as well as the borrowers.
4. RBI ensures that the loans are being provided to small cultivators, business men and workers too.
Informal Credit:
1. It includes moneylenders, traders, relatives, employers, friends etc.
2. No organization controls the informal sources.
3. The interest rate is decided as per the lender’s interest and there is no check on the unfair means used to get the money back.
4. Most of the times, lenders are poor farmers who fall into debt traps.
Explanation: The two sources of credit are available both in urban and rural areas. However, most of the times the poor suffer from informal sector and the wealthy benefit from the formal sector.
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