Formal Sources:
(i) These sources of credit are registered by the government and have to follow its rules and regulations.
(ii) RBI Supervises the functioning of formal sources of credit.
(iii) They generally charge lower rates of interest.
(iv) Their main motive is social welfare.
(v) E.g., Banks and cooperatives.
Informal Sources of Credit:
(i) These include those small and scattered units which are largely outside of the control of the government.
(ii) There is no organization which supervises its credit activities.
(iii) They charge much higher rate of interest.
(iv) Their main work is profit making.
(v) E.g., Moneylenders, traders, employees, relatives, and friends.
