Social Science (087) — CBSE Class 10 board question

Credit terms vary substantially between formal and informal lenders in the following ways:

1. Interest Rates: Formal lenders (banks, cooperatives) charge low interest rates — e.g., Arun gets a bank loan at 8.5% per annum. Informal lenders charge very high rates — e.g., Shyamal paid 60% per annum to a moneylender and Rama's employer charges 5% per month.

2. Supervision: The RBI supervises formal lenders and monitors their lending practices. No organisation supervises informal lenders; they can charge any rate and use unfair means to recover loans.

3. Collateral and Documentation: Formal loans require proper documents and collateral. Informal lenders like moneylenders often lend without collateral since they know borrowers personally.

4. Access: Rich households get 83% of their loans from formal sources, while 54% of poor urban households' loans come from informal sources.

5. Impact: Formal credit is cheaper and helps increase income. Informal credit, due to high cost, can push borrowers into a debt trap — as seen in Swapna's case.

Source: Chapter 3 — Money and Credit, Formal Sector Credit in India / Variety of Credit Arrangements

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• Examiners look for a clear comparison across parameters: interest rate, supervision, collateral, access, and impact.
• Use examples from the textbook (Arun, Shyamal, Rama, Swapna) — this earns marks and shows you've read the chapter.
• Mentioning RBI supervision vs. no supervision of informal sector is a key point most students miss.
• The Graph 2 statistic (83% vs. 54%) adds a factual punch — worth including for a 5-mark answer.
• Do NOT write vague generalisations; stick to specific contrasts backed by examples.