What are the drawbacks of informal sources of credit
Asked by admin @ in Social Sciences viewed by 462 People
What are the disadvantages of informal source of credit?
Answered by admin @
Formal sources of credit
Banks and cooperatives are the formal sources of credit.
Advantages
1. These institutions are regulated by the Reserve Bank Of
India. Their rates of interest for loans are controlled. The rates and terms
are fixed.
2. There is no exploitation by the lenders.
3. Everyone can take a loan that includes big businessmen as
well as the small cultivators or borrowers.
4. The cost of borrowing is usually less.
Disadvantages
1. The procedure to get the loan is time consuming.
2. They require collateral security.
Informal sources of credit
Landlords, traders, moneylenders, employers, friends and
relatives are informal sources of credit.
Advantages
1. No external control over the lending practices.
2. Suitable for poor households.
Disadvantages
1. The interest rates can be very high.
2. The lenders can use unfair means to get the money back
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