Points on Which Different

Formal Sources of Credit

Informal Sources of Credit

Borrower’s capability

Richer people can borrow easily as they have assets and guarantee of returning the debts on time.

Poorer people can’t borrow because of lack of assets and any documents and incapability of returning the debts.

Rate of interest

Reasonably low

Very high

Sources

Banks and co-operative societies

Traders, moneylenders, landowners, etc.

Action on default of payment

Collateral can be confiscated and sold to recover the loan

Borrowers can be made as bonded labourers or made to part with land owned by them