1. Institutions involved: Formal sources of credit include banks and cooperative societies, while informal sources include moneylenders, traders, employers, relatives and friends. 2. Supervision: The Reserve Bank of India supervises the functioning of formal sources of credit - it sees that the banks maintain a minimum cash balance, that they give loans not just to profit-making businesses and traders but also to small cultivators, small-scale industries and small borrowers, and banks have to submit periodic reports to the RBI. In contrast, there is no organisation which supervises the credit activities of lenders in the informal sector. 3. Rate of interest: Formal sources charge a low and fixed rate of interest; informal lenders charge a much higher rate of interest, so the cost of borrowing is much higher and the borrower may fall into a debt-trap. 4. Documents and collateral: Formal lenders require proper documents and collateral, which poor households often do not have, so they are forced to go to informal lenders; informal lenders know the borrowers personally and lend without collateral, but they may use unfair means to get their money back. 5. Purpose and terms: Formal credit generally helps in increasing production and income and its terms of credit are fair, while informal credit often means high cost, exploitation and harassment of the borrower.