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Main Types Of Credit Sources

ORIGIN of MICRO-FINANCE

Background:-
There are three main types of Credit sources:-

1. Semiformal
2. Formal
3. Informal

1. Semi Formal Institutions:-
 ROSCA’s (Rotating Saving and Credit Associations) ,Credit and Saving
 Money Guard

2. Formal Institutions:-
 Commercial Banks
 Specialized credit institutions (specific target groups) e.g. ZTBL, PICI, IDBP etc
 Cooperative Banks, Cooperative societies
 Provincial governments (Taccavi loans)
 All these institutes provide loans upon collateral.

3. Informal Institutes:-
 Non- institutional
 Friends and family (rural credit survey says that 90% of the loans came from friends and family)
 Money lenders (Charges very high rate of interest)
 Land lords (give credit to tenants in rural areas only)
 Shopkeepers
 Suppliers (urban areas)

Formal Credit Source follow following pattern:
1. Collateral
2. Specific term
3. Specific Purpose
4. Markup /Rate of interest
1. Collateral:
 They grant credit on the basis of collateral and collateral can be any physical thing like land, home etc.
 Collateral is important because the formal credit institutions don’t have much information of the credit seeker.

2. Specific term:
 Informal loans are for specific term i.e. for short term, medium term and long-term

3. Specific Purpose:
 These loans are given for specific purpose e.g. for production (short term ) and for developmental areas (long-term).

4. Markup/Rate of interest:
 Markup rate is fixed and given.

Microfinance:
Microfinance requires social collateral and no physical collateral is required and all other things are there like
 Specific term
 Specific purpose
 Markup / Rate of interest

Poorest of the poor:
 Have no collateral
 Going to default
 High transaction cost (Transaction cost is very high for small loan)
 Risk
 No collateral

Microfinance:
Provide lending + saving services. It is a combination of formal and informal aspect ....