Formal sector of credit better than informal sector. Give arguments in…

‘Formal sector of credit better than informal sector.’ Give arguments in support of your answer.

Ans. The formal sector of credit offers several advantages over the informal sector. Firstly, formal institutions such as banks and credit unions provide regulated and transparent lending processes, offering borrowers legal protections and recourse in case of disputes. Secondly, formal credit often comes with lower interest rates compared to informal sources, reducing the financial burden on borrowers. Thirdly, accessing formal credit builds a borrower’s credit history, enhancing their credibility for future loans and fostering financial inclusion. Overall, the formal sector promotes financial stability, fosters economic growth, and protects the rights of borrowers, making it a preferable choice over the informal sector.