Terms of credit vary substantially between formal and informal sector . Explain

Dear student,

Terms of credit refers to various terms and conditions which must be completed before taking loans. It includes interest rate, documentation, collateral security and mode of repayment. The terms of credit vary from organisation to organisation.
RBI monitors the functioning of formal sector, they ensure that banks give loans not only to richer section of society but also to small borrowers too. The banks need to submit periodical reports to RBI as how much they have lent to whom and at what interest rate.
There is no such body/organisation to look after functioning of informal sector. They charge comparatively high rates of interest and mostly exploit poor borrowers. 


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Terms of credit vary substantially in the informal sector they are high and inconsistent whereas in the formal sector they are according to the creditor and constant.
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