Comparing Organised & Unorganised Money Market

Comparing Organised & Unorganised Money Market

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In any economy, a money market is a platform where short-term financial instruments are traded. In India, the money market can be divided into two categories: organised money market and unorganised money market. The organised money market is highly regulated, transparent, and follows a standardized system of rules and regulations. The RBI oversees the activities of the organised money market, and transactions are conducted according to the guidelines set by the regulatory authorities. In contrast, the unorganised money market is largely unregulated, lacks transparency, and operates on an informal basis. It is made up of informal credit systems like chit funds, moneylenders, and informal associations.

Another difference between the organised vs. unorganised sector is their structure. While organised market is highly structured and transactions are conducted through pre-established procedures, the unorganised money market lacks structure, and transactions are conducted through informal channels. The organised money market offers relatively low-risk credit at lower rates of interest. The financial institutions in this market can get low-cost funds through banks and other sources. In the unorganised money market, interest rates are often high, as lenders have to get a cover for their cost funds.

The organised vs. unorganised money market activities are also quite different as established and secured players generally tend to lean towards the organised sector. More businesses and trading is performed through the same as there is safety and surety of funds along with lower rate of interest while lending. Conversely, more shady deals and risky ventures are covered through the unorganised money markets. Instant loans and credit without collateral may be received in this type of system. However, it does not mean that all transactions in this system are illegal. At times, people and businesses may need them during an emergency so that they exist for all types of activities.

The organised and unorganised money market approach is also quite different as organised market is mostly operational in urban, semi-urban and some rural areas of the country whereas unorganised market is usually present in remote and rural areas where organised market may not be available easily. The organised money market offers lower risk credit while unorganised money market is characterised by high-interest rates. Ultimately, a well-organised and regulated money market is critical to the growth and development of the Indian economy.