CBSE Class 10 Social Science Economics Money and Credit Hindi Assignment

Money and Credit Summary Class 10 Social Science

MONEY AS A MEDIUM OF EXCHANGE–

Money is called a medium of exchange as it acts as an intermediate in the exchange process. A person holding money can easily exchange it for any commodity or service that he or she might want.

Due to its role as an intermediate in transactions, forms and essence of money has changed over time, from grain and cattle being used for transactions in ancient periods to coins later on to further modern forms of money today.

The main function of Money is to eliminate the need for double coincidence of wants. It was very important in the barter system, an exchange could take place only, if both parties want exactly the same thing that the other party has to offer at the same time.

MODERN FORMS OF MONEY -

● Currency:
✔Modern forms of money include currency - paper notes and coins.
✔Today, currency is not made of precious metals but still accepted as a medium of exchange, as it is authorized by the government.
✔In India, only the Reserve Bank of India issues currency notes on behalf of the central government.
✔No individual in India can legally refuse a payment made in rupees.

● Deposits with Banks:
✔The other form in which people hold money is as deposits with banks.
✔Excess money after fulfilling day to day needs is deposited with the banks by opening a bank account.
✔Deposits in the bank account which can be withdrawn on demand are called demand deposits.
✔Banks also offer the facility of payments being made by cheques instead of cash.

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

LOAN ACTIVITIES OF BANKS –
⮚ Banks use the major portion of the deposits to extend loans for various economic activities.
⮚ In this way, banks mediate between those who have surplus funds (the depositors) and those who are in need of these funds (the borrowers).
⮚ Banks charge a higher interest rate on loans than what they offer on deposits.
⮚ The difference between what is charged from borrowers and what is paid to depositors is the main source of income for banks.

TWO DIFFERENT CREDIT SITUATIONS –
Credit (loan) refers to an agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment.

Situation – 1 -Festival Season -

Salim obtains credit to meet the working capital needs of production. The credit helps him to meet the ongoing expenses of production, complete production on time, and thereby increase his earnings. Credit positive role in this situation.

Situation – 2– Swapna’s Problem –

Swapna takes a loan from the moneylender to meet the expenses of cultivation, hoping that her harvest would help repay the loan. The failure of the crop made loan repayment impossible. She had to sell part of the land to repay the loan. Credit, instead of helping Swapna improve her earnings, left her worse off. She was also caught in debt trap.

In rural areas, the main demand for credit is for crop production. Repayment of the loan is crucially dependent on the income from farming. In case of crop failure, credit pushes the farmer into a debt trap.

TERMS OF CREDIT -
● It is agreement between the lender and the borrower
● Interest rate, collateral and documentation requirement, and them ode of repayment together comprise the terms of credit.
● The terms of credit vary substantially from one credit arrangement to another.
● They may vary depending on the nature of the lender and the borrower.
● Interest rate is the amount which the borrower must pay to the lender along with there payment of the principal amount.
● Collateral is an asset that the borrower owns (such as land, building, vehicle, livestocks, deposits with banks) and uses this as a guarantee to a lender until the loan is repaid.

Variety of credit arrangements –
● In case of Shyamal (small farmer) it is village moneylender and agricultural trader.
● In case of Arun (middle landowner) it is bank
● In case of Rama (agricultural labourer) it is her employer (a middle landowner)

Loan from Cooperatives–
Cooperative societies (or cooperatives) provide cheap credit in rural areas. Members of a cooperative pool their resources for cooperation in certain areas. There are several types of cooperatives possible such as farmers’ cooperatives, weavers cooperatives, industrial workers cooperatives, etc.

Krishak Cooperative provides loans for the purchase of agricultural implements, loans for cultivation and agricultural trade, fishery loans, loans for construction of houses etc.

FORMAL SECTOR CREDIT IN INDIA –

The various types of loans can be conveniently grouped as

Formal Sector Loans (loans from banks and cooperatives) and

Informal Sector Loans (including moneylenders, traders, employers, relatives and friends).

✔The RBI supervises the functioning of formal sources of loans. Periodically, banks have to submit information to the RBI on how much they are lending, to whom, at what interest rate, etc.
✔Informal sources of credit are unsupervised and hence prone to usage of unfair terms of credit (such as high interest rate) and means of recovery, which may cause the borrower hardships and often push him in debt trap.

Formal and Informal Credit: Who gets what - Graph 2

✔Rich households both in urban and rural areas, avail a major portion of their credit from formal sources (90%).Poor households depend on informal sources (85%).
✔The formal sector still meets only about half of the total credit needs of the rural people.

Solution -

✔Banks and cooperatives need to expand in the rural areas to reduce the dependence upon informal sources and in the urban areas credit from these sources needs to be more equitably distributed even to the poor households.
✔A cheap and affordable creditfrom formal source is necessary for the development of the country.

SELF-HELP GROUPS FOR THE POOR –

A self-help group (SHG) is
● An informal association of people who come together to find ways to improve their living conditions. They are generally self-governed and peer controlled.
● It is basically a community where 15-20 members generally women, usually belonging to one neighborhood meets and save regularly.
● Members can take small loans from the group itself to meet their needs. The group charges interest on these loans but this is still less than what the moneylender charges.
● The group as a whole decides the terms of credit for granting loans to the members.
● If the group is regular in savings, it becomes eligible for availing loan from the bank.
● Bank loan is sanctioned in the name of the group and is meant to create self-employment opportunities for the members.
●SHGs help borrowers overcome the problem of lack of collateral. They can get timely loans for a variety of purposes and at reasonable interest rate.

SUMMING UP –
Economic activities require loans or credit. Credit can have a positive or negative impact on borrower. Credit is available from a variety of sources. These can be either formal sources or informal sources. Terms of credit vary substantially between formal and informal lenders. At present, it is the richer households who receive credit from formal sources whereas the poor have to depend on the informal sources. It is essential that the total formal sector credit increases so that the dependence on the more expensive informal credit becomes less