Write the Difference between Formal and Informal Sources of Credit or Loans
By Balaji
Updated on: February 17th, 2023
The difference between formal and informal sources of credit or loans is that formal sources are registered with the government, whereas informal sources are not. The formal sources of credit are directly controlled by the government and are expected to follow the government’s rules and regulations.
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1. Difference between Formal and Informal Sources of Credit or Loans
Difference between Formal and Informal Sources of Credit or Loans
Both sources of credit are open to the public or customers. But, it is always safe to go with government-regulated sources of loans as they are well-supervised and secured.
- For any business owner in India, whether they take a formal or informal loan is the prior concern.
- All of it is aggravated by the capacity of him/her and the nature of business.
| Formal Sources of Credit or Loans | Informal Sources of Credit or Loans |
| The formal sources of loans are followed by laws and regulations registered by the government. | The informal sources include all small and scattered units that are typically beyond the control of the government. |
| Authorized by the government | Unauthorized sources |
| Supervised by Reserve Bank of India or RBI | Not supervised by any authority |
| Charge low-interest rates | Charge high-interest rates |
| The main aim is social welfare | The main aim is profit earning |
| Examples: Cooperatives and Banks | Examples: Workers, moneylenders, relatives and friends, merchants, etc. |
The above table will give you a fair knowledge of the formal and informal sources of loan credit. You can decide the sources if you will earn profit or social welfare.
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