Dintinguish between formal sector and informal sector loans.

The distinctions:

(i)Formal sector loans are such loans which are taken either from the banks or the co-operatives. While informal sector loans are those which are taken from moneylenders, traders, employers, relative and friends.

(ii)In the case of informal sector of loans, the rate of interest is quite high. On the other hand the rate of interest in informal sector is very low.

(iii) In formal sector of loans, there is no exploitation unlike the informal sector of loans. In the informal sector, the trader would  buy the produce of the farmers at lower price but a bank would never resort to such tactics.