Credit is an agreement in which lender supplies the borrowers with money, goods and services in return for the promise of future payment.
There are a two main sources of credit in India.
(i) Formal sources - e.g. Banks, Cooperatives
(ii) Informal sources - e.g. Money lenders, traders.
The advantages of formal sources ofcredit are
(i) It provides loans at a fixed rates and terms.
(ii) It gives loans not just to profit-making businesses and traders but also to small cultivators, small-scale industries to small borrowers etc.
(iii) Cost of borrowing is less and hence promote borrowing and more economic growth.
(iv) There is no exploitation as in the case with the informal sectors.