Money and Credit

CLASS 10 NOTES

SOCIAL SCIENCE

PRASHANT KIRAD

Anything which is legalized by the

government of the

country that helps in

medium of exchange and

measure the value of goods and services.

The double coincidence of wants refers to the

situation in a barter system where both

parties must want what

the other offers in

order to make a trade.

Money as a medium of exchange

Money

The barter system is an early method of trade where goods and services are directly exchanged for other goods and services without using money.

Double coincidence of wants

CURRENCY:

Currency is a generally accepted form of money, including coins and paper notes.

In India, the Reserve Bank of India (RBI) issues currency notes on behalf of the central government.

The law legalizes the use of ‘rupee'(₹) as a medium of payment that cannot be refused in setting transactions in India.

Therefore the 'rupee’ (₹) is widely accepted as a medium of exchange.

PRASHANT KIRAD

Money and Credit

The use of money is a very large part of our Everyone life. Money is widely used as a medium of exchange as goods are exchanged with money.

Modern forms of money

Barter System

Deposits with banks

Other forms in which people hold money are deposits with banks. Money deposited in Banks is safe with the bank and people also get interest on the deposited amount.

The deposits in the bank accounts can be withdrawn on demand. Hence, these deposits are also called demand deposits.

Cheque Facility

A cheque is a paper instructing the bank to pay a specific amount from the person's account to the person in whose name the cheque has been issued.

Modern Banking System

Banks mediate between those who have extra funds (the depositors) and those who need those funds (the borrowers).

Banks charge a higher interest rate on loans than what they offer on deposits. This difference between interest is bank's main source of income.

PRASHANT KIRAD

Credit (loans) refers to an agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment.

Loans are both good and bad, in one situation it can increase a person’s earnings, in another situation it may push the person into a debt trap.

Debt trap is a situation

in which a loan is

difficult or impossible to repay, it is mainly caused due to high

interest.

Debt trap

PRASHANT KIRAD

Credit (Loans)

TERMS OF CREDIT:

These are the specific conditions under which a loan is provided, including payment methods, interest rates, loan duration, and other related terms.

Collateral: This refers to an asset the borrower owns (like land, buildings, vehicles, livestock, or bank deposits) that serves as a security for the lender until the loan is fully repaid. Common forms of collateral include land titles, bank deposits, and livestock.

Lender's Rights: If the borrower defaults on the loan, the lender is entitled to sell the collateral to recover the owed amount.

Credit Sources in India:

Loans can be categorized into two main types: formal sector loans and informal sector loans. Formal sector loans include those from banks and cooperatives, while informal sector loans come from sources like moneylenders, traders, employers, and even relatives or friends.

Their work is regulated by RBI.

They charge a lower rate of Interest than informal sources.

They follow rules and regulations formed by the government.

Formal credit can help prevent people from falling into a debt trap.

It might require collateral for the credit.

The rate of interest is on a yearly basis.

E.g.: Banks and cooperatives.

They do not work under any government organization.

They charge a higher rate of interest than formal sources.

They do not follow most of the rules and regulations.

Borrowers are at higher risk of falling into a debt trap due to high interest rates.

It does not require any collateral.

Generate rates of interest every month.

Eg: Money lenders, and traders.

FORMAL SOURCE OF CREDIT

INFORMAL SOURCE OF CREDIT

PRASHANT KIRAD

PRASHANT KIRAD

Why do people in rural areas prefer informal sources of credit??

Banks have limited reach in rural areas, whereas informal lenders are more readily available in villages.

Poor individuals often face difficulty in securing bank loans due to the requirement of collateral, which they usually do not possess.

Informal lenders provide loans without collateral, making them more accessible to the poor.

However, the very high interest rates charged by informal sources push people to explore alternative borrowing options.

Self Help Groups (SHGs for Poors):

SHGs (Self Help Groups) consist of 15-20 members who regularly meet and pool their savings. The savings amount ranges from ₹25 to ₹100 or more, depending on each person’s capacity.

After one to two years of consistent savings, the group becomes eligible to apply for loans from banks.

SHGs help their members overcome the challenge of not having collateral for loans.

Decisions on loans, such as interest rates, duration, purpose, and loan amounts, are made collectively by the group members.

If a member is unable to repay their loan, other members can contribute on their behalf. This feature makes banks more willing to lend to SHGs.

Members can also borrow small loans from the group itself. Regular meetings offer a platform to discuss and address various social issues.

top 7 questions

Q1. Define Cheque.

Ans: A cheque is a paper instrument that instructs a bank to pay a specific amount from the account of the person issuing the cheque (the drawer) to the person whose name is written on the cheque (the payee). Cheques allow for payment to be made without the need for cash.

Q2. Compare and contrast the role of formal and informal source of credit.

PRASHANT KIRAD

PRASHANT KIRAD

Q3. Write any three reasons for the banks and cooperative societies to increase their lending facilities in rural areas.

Ans: Three reasons for banks and cooperative societies to increase lending facilities in rural areas:

Reduce dependence on informal credit: Provides loans at lower interest rates, reducing exploitation by moneylenders.

Boost agricultural development: Helps farmers invest in better resources, increasing productivity.

Promote self-employment: Encourages small businesses and self-reliance through affordable loans.

Q4. Describe any four advantages of Self-Help Groups for the poor.

Ans: This is a new idea to organize rural poor particularly women who pool their savings. Generally, this group has 15-20 members. Members belong to the neighbourhood so that they can meet and save regularly. The four advantages of Self-Help Groups for the poor are:

When the group is regular in saving for a year or two then the group is eligible for getting a loan from the bank.

Banks provide loans in the name of the group and then the SHG gives loans to its members at a very low rate of interest.

Loan matters are taken very seriously if any one member is not able to repay the loan then it is followed by other members and because of this feature, they get a loan from the bank even though they have no collateral.

Their work is regulated by RBI.

They charge a lower rate of Interest than informal sources.

They follow rules and regulations formed by the government.

Formal credit can help prevent people from falling into a debt trap.

It might require collateral for the credit.

The rate of interest is on a yearly basis.

E.g.: Banks and cooperatives.

They do not work under any government organization.

They charge a higher rate of interest than formal sources.

They do not follow most of the rules and regulations.

Borrowers are at higher risk of falling into a debt trap due to high interest rates.

It does not require any collateral.

Generate rates of interest every month.

Eg: Money lenders, and traders.

FORMAL SOURCE OF CREDIT

INFORMAL SOURCE OF CREDIT

PRASHANT KIRAD

PRASHANT KIRAD

Terms ko samjhna

Important h!!!!

The loan is provided to help them create self-employment opportunities.

SHG helps women by making them financially self-reliant and provides a platform to discuss and act on a variety of social issues.

Q5. How are deposits with banks beneficial for the individual as well as for the nation? Explain with examples. {Delhi 2015}

Ans: Those having extra cash open a bank account in their name and deposit the surplus money there. Their money is safe with the banks and they get some interest rate on the amount they have deposited. Out of the total money deposited with the banks 15% of it is kept as minimum cash balance to pay to the depositors who might come to withdraw money from the bank on any given day.

The rest of the amount is used to extend the loan to the borrowers. This helps people to run and expand their businesses which will increase the individual income and finally the country’s income.

Q6. Explain any three functions of the Reserve Bank of India.

Ans: Functions of Reserve Bank of India.

Supervises the functioning of loans in the formal sector.

It issues guidelines for fixing rates of interest on deposits and lending by banks.

It issues currency notes on behalf of the Central Government.

Maintain checks and balances.

�C��s� �0�� �h��e��e�

- Prashant Bhaiya

Q7. Why is the modern currency accepted as a medium of exchange without any uses of its own?

Ans:

It is authorised by the government of the Country.

It is issued by Apex Bank on behalf of the Central Government, in India Reserve Bank issues currency notes.

No other individuals or community is allowed to issue currency.

The law of the country legalized its use as a medium of payment.

No one can refuse the currency.

PRASHANT KIRAD