The two categories of sources of credit are:
- Formal sources of credit
- Informal sources of credit
The features of formal sources of credit are:
- They charge low rate of interest and the mode of repayment is easy.
- They keep a collateral from the borrowers for granting loans.
- Reserve Bank of India supervises the functioning of formal sources of credit, (id) Urban households are largely depend on formal sources of credit.
- They include banks and cooperatives.
The features of informal sources of credit are:
- They charge higher rate of interest and the mode of repayment is very harsh.
- There is no need to keep a collateral in informal sources of credit.
- There is no organisation to supervise the functioning of informal sources of credit.
- Poor households are largely depend on informal sources of credit.
- They include moneylenders, relatives, friends etc.
