10TH CBSE SST What are the two categories of sources of credit? Mention four features of each.

 

Ans:
The two sources of credit are formal sources and informal sources:
Formal sources of credit:
1. Banks and cooperative societies fall under the formal sector. One can obtain loans from banks or
cooperative societies.
2. The Reserve Bank of India supervises the functioning of formal sources of loans.
3. Bank loans require documentation and collateral (collateral is an asset such as land, building, vehicle,
livestock, deposits with the bank, etc.). This is used as a guarantee to the lender until the loan is paid  back.
4. Formal sources cannot charge any rate of interest from the borrowers according to their whims.

Informal sources of credit:
1. In the informal sector money can be borrowed from a person, friend, relative, moneylender, traders,
employers, etc.
2. There is no organisation that checks or supervises the activities of lenders in the informal sector.
3. Loans from informal sources do not require any such collateral.
4. They charge a very high rate of interest on loans as they do not require any collateral.