Unit 4 Ch 3 : Money and Credit — Social Studies STD 10 — Question

The formal sector gives loan only after thorough check of the borrower. Suitable paperwork are done before giving the loan so that both the borrower and the creditor can resort to judicial process in case of any problem. Rate of interest is governed by the government rules when loan is given by the formal sources. In case of informal sector, rate of interest is usually very high and the borrower cannot go to the courts in case of being subjected to arm-twisting tactics by the creditor. Informal sector usually works on personal influence and relation of the borrower and creditor.