Difference Between Formal and Informal Sector Loans (Class 10)

For class 10 students, Money and Credit is considered as an important chapter in Economics.

This article will highlight the key differences between Formal and Informal Sector Loans to give clarity on this topic.

But, before proceeding further, I would like to make you familiar with the key terms used in this article.

  • Informal Sector Loans: Informal sector loans are a kind of loan which can be taken from moneylenders, colleagues etc.
  • Formal Sector Loans: Formal sector loans are a kind of loan which are either taken from the banks or co-operatives.
Formal and Informal sector loans

Iโ€™ve decided to provide you with the key differences between Formal and Informal Sector Loans and put them all in the tabular format.

Key Differences Between Formal and Informal Sector Loans

Formal Sector LoansInformal Sector Loans
The Reserve Bank of India (RBI) organises the functioning of formal sources of loans.There is no organisation which supervises the loan activities of lenders.
RBI checks on how much they are lending and at what interest.They can lend the money at whatever interest rate they select.
This sector has some rules and boundaries to get the money back.No one can stop them using unfair means to get their money back.
They charge reasonable interest as compared to informal lenders on credit.They charge much higher interest as compared to formal lenders on credit.
The main motive is public welfare.The main motive is to make their own profits.
This includes banks and co-operatives.This includes traders, moneylenders, employers, friends etc.

This chapter Money and Credit contains many other important key differences for class 10 board examination like:

  • Paper Notes and Coins
  • Informal sector loans and Formal sector loans
  • Formal and Informal sources of credit
  • Informal and Formal lenders

Final Words

So, thatโ€™s all.

All the important differences between Formal sector loans and Informal sector loans in Chapter 3 Money and Credit from the NCERT Class 10 are listed above in the table format.

If you have any related queries or suggestions, feel free to let me know in the comments right now.


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