Question
What are the two categories of sources of credit? Mention four features of each.
Solution
The two categories of credit sources are ‘formal’ and ‘informal’.
The following are four features of formal sources of credit:
i. The most important in this category are banks and cooperative societies. Loans can be obtained from these.
ii. The Reserve Bank of India supervises the functioning of these formal sources. Informal sources of credit:
i. In the informal field, money can be borrowed from a person, friend, relative, moneylender, trader and employer.
ii. There is no regulatory or supervisory body in this sector.
iii. Loans from this sector of credit do not require any collateral.
