economicsChoose the given statement as true/false:Formal sources of credit are safe and cheap as compared to informal sources.

Choose the given statement as true/false:


Formal sources of credit are safe and cheap as compared to informal sources.


  1. A
    True
  2. B
    False 

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    Solution:

    The above statement is true.
    Banks and cooperatives are two primary formal sources of credit in India. Traditional sources of credit require proper documentation and collateral before releasing credit. They are less vulnerable to fraudulent activities and charge a reasonable interest rate. The distinction is cheaper and safer compared to informal sources. Apart from making a profit, their main goal is the social welfare of people, and thus there are fewer chances of exploitation of borrowers. They have fair credit terms and are governed by a higher authority- the Reserve Bank of India. There is a need for more banks and cooperatives as they promote traditional sources of credit.
     
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