Question 33 (Choice 2) - Teachoo Sample Paper - Social Science Class 10 - Paper 1 - Solutions to CBSE Sample Paper - Social Science Class 10 - Social Science Class 10

Criteria

Formal sector of credit

Informal sector of credit

Meaning

The sector of credit that is regulated by the government or other authorities.

The sector of credit that is not regulated by any authority, such as moneylenders, traders, relatives, and friends .

Rate of interest

Lower than informal sector of credit, as they have to follow the rules and regulations set by the government or the Reserve Bank of India .

Higher than formal sector of credit, as they do not have any restrictions and can exploit the demand and supply of credit in the market.

Collateral

Required from the borrowers to ensure repayment. 

Not usually required from the borrowers, but may rely on personal or social relationships or reputation.

Accountability

Provided to different sections of society, as they follow certain norms and standards for lending and borrowing. The borrowers can enjoy legal rights and remedies in case of any dispute or grievance with the lenders.

Not provided to different sections of society, as they operate according to their own terms and conditions. The borrowers may face exploitation, harassment, or violence from the lenders in case of default or delay in repayment.

Example

Banks and  cooperatives

Moneylenders, traders, relatives, friends.