CBSE Class 10 Social Science Money and Credit Important Questions Set C

Short Answer Type Questions

Question. What do you understand by double coincidence of wants ?
Answer: Double coincidence of wants is a difficult situation involved in the barter system. Under the barter system, the transactions between two persons were executed through the mutual exchange of goods. For example, person A has got rice and wants a blanket while person B has blanket and wants rice. Both of them have the things which the other one wants. So the transaction here can take place easily. This is called double coincidence of wants, i.e., what a person desires to sell is exactly what the other wishes to buy.

Question. How does the use of money make it easier to exchange things ? Given an example.
Answer: Money makes the things easier as :
(i) It is in the form of authorised paper currency which gives the guarantee of the mentioned price to the owner.
(ii) It has general acceptability.
(iii) Its price remains constant compared to other commodities.
(iv) Money can be stored easily and it doesn’t need much space.

Question. ‘‘Banks are efficient medium of exchange.’’ Support the statement with arguments.
Answer: We agree with the statement that banks are efficient medium of exchange.
(i) Demand deposits share the essential features of money.
(ii) The facility of cheque against demand deposit makes it possible to directly settle payment without use of cash.
(iii) Demand deposits are accepted widely as a medium of payment.

Question. “Focuses of currency have undergone several changes since early times.” Elucidate.
Answer: (i) Before the introduction of coins, a variety of objects were used as money.
(ii) For example, since the very early ages, Indians used grains and cattle as money.
(iii) Thereafter, the use of metallic coins–gold, silver, copper coins–a phase which continued well into the last century.
(iv) Modern forms of money include currency–paper notes and coins.
(v) Modern currency is not made of precious metal, it is without any use of its own.

Question. Look at a 10 rupee note. What is written on top ? Can you explain this statement ?
Answer: The top of the 10 rupee note presents the promise of the Governor of the Reserve Bank of India in these words – “I PROMISE TO PAY THE BEARER THE SUM OF TEN RUPEES.” This statement means that the RBI Governor promises to pay the value of ten rupee note in the form of other denominations of Indian currency equivalent to rupees ten. This promise of the Governor of RBI represents the legal status of the Government of India to this currency.

Question. How do banks mediate between those who have surplus money and those who need money?
Answer: Banks act as financial mediator or intermediaries between the saver and borrowers. Savers are the people who have surplus money which they do not require in the near future. They deposit such money by opening an account in the bank. Banks give interest on such deposits. On the other hand there are people who want credit for business requirements or meeting their personal needs. Banks provide credit or loan to such people and charge interest on that. The banks charge a bit higher rate of interest on loans and pay a bit lower rate of interest on deposits. This difference between rates of interest become source of income for the banks.

Question. How are deposits with the banks beneficial for individual as well as for the nation ? Explain with examples.
Answer: The deposits with banks are beneficial for individual as well as for nation :
(i) Banks accept deposit and also pay an amount as interest and in this way people earn money.
(ii) People’s money is safe with banks.
(iii) It is easy for individuals to get credit who have savings and current account in the banks.
(iv) Poor people who are engaged in production need credit.
(v) Credit provided by the banks for government projects helps in the development of the nation.
(vi) Banks provide loans for the promotion of International trade.
(vii) Development of infrastructure is undertaken with the loans provided by the banks.

Question. Explain any three loan activities of banks in India.
Answer: Activities of banks in India who are involved in providing loan :
(i) Banks in India these days want 15% to 20% from loan seeker to pay for their other resources and give balance money as loan on interest. For example, if someone wants \( ₹ \) 1 lakh as loan for purchase of house, bank will pay around 80% of amount against hypothecation of property of equal amount.
(ii) Bank keeps a provision to pay the amount to loan seeker or depositor who might come for the money to the bank on any given day.
(iii) Bank uses the major portion of deposits to extend loan.
(iv) Difference between the interest rates, what bank pay to public for FD and what they charge from loan seeker is the main source of income of banks.

Question. What are the main functions of a bank ?
Answer: Accepting deposits and providing loans are the main functions of a bank. Banks act as financial mediator or intermediaries between the savers and borrowers. Savers are the people who have surplus money which they do not require in the near future and they deposit such money with banks. On the other hand, there are people who want credit for business requirements or meeting personal needs. Banks provide credit or loan to such people and charges interest on particular loan.

Question. Explain any three reasons for the banks and cooperative societies to increase their lending facilities in rural areas.
Answer: (i) The poorer section of the society can get a greater share of formal credit and hence prosper. (ii) The dependence on money lenders and traders who charge extraordinary high rates decrease.

Question. In situations with high risks, credit might create further problems for the borrower. Explain.
Answer: A person takes credit or loan with the explicit or implicit understanding of returning that credit amount with interest to the lender. Sometimes it happens that the purpose for which loan has been taken by the borrower involves high risk in which the returns on the loan amount become uncertain. If the returns from the investment made out of loan amount happen to be negative then some or whole of the loan amount may be lost. If the borrower does not have any asset to compensate the lost amount then he may have to take fresh loan to expedite the loan or credit previously taken. This may lead to debt trap. Debt trap is a situation in which a person has to take new loans to pay the previously taken loans and this is a very serious problem for a person. Sometimes a person who gets into this trap and does not find ways to get out of that, may commit suicide. This has happened with various farmers and businessmen in India.

Question. What are “Terms of Credit” ? Are they same for every borrower ?
Answer: Agreement regarding interest rate, collateral and documentation requirement and the mode of repayment etc. together constitute the “Terms of Credit”. The terms of credit vary substantially from borrower to borrower depending upon various factors like duration of credit, amount of credit, purpose of credit, past relationship between borrower and lender and risk involved in credit etc.

Question. Why do lenders ask for ‘collateral’ while lending ? Analyse the reasons. OR Why do banks demand ‘collateral’ while issuing a loan ?
Answer: Lenders ask for collateral while lending to borrowers because—
(i) Lenders demand collateral (security) against loan. Collateral is an asset that the borrowers owns (such as land, building, vehicles, livestocks, deposits with Bank).
(ii) Every loan specifies an interest rate which the borrower must pay to the lender alongwith the repayment of the principal.
(iii) Lender use the collateral as a guarantee until the loan (with interest if applicable) is repaid.
(iv) If the borrower fails to repay the loan, the lender has a right to sell the asset or collateral to recover his payment.

Question. What are the prerequisites for the credit system in India to be successful for poor ?
Answer: In order to make the credit system successful in India, it is necessary that banks and cooperative societies expand their lending facilities particularly for poor people in the rural areas, so that their dependence on informal sources of credit reduces. These informal sources charge a very high interest rates from these people which left them with very little income and savings. Hence, credit must be available to this section on soft terms. Another problem which poor people face is that very few of them get the loan. Thus, it is also very necessary that everyone receives these loans so that they don’t have to depend on the informal sources.

Question. Describe the significance of the Reserve Bank of India.
Answer: The significances of the Reserve Bank of India are discussed below :
(i) It issues currency notes on behalf of the central government.
(ii) It supervises the functioning of formal source of loans. RBI monitors the banks and ensures that they maintain minimum reserves as per the guidelines of Central Bank.
(iii) It also sees that banks give loans not just for profit making to traders but also to small borrowers, small cultivators etc.
(iv) Periodically banks have to submit information to RBI on how much they are lending, to whom, at what interest rate, etc.
(v) When commerical bank fails to get financial accommodation from any where, it approaches Central Bank as a last resort. Central Bank advances loan to such banks against approved securities. It ensure that the the banking system of the country does not suffer from any setback and money market remains stable.
(vi) It acts as a banker to the government and is the custodian of the foreign exchange reserves of the economy.

Question. What happens when there is no one to supervise informal sector lending ?
Answer: This gives a kind of liberty to moneylenders to charge whatever interest rate they wish to charge, no matter how much high the rate is. Similarly, there is no one to stop them from using unfair means to get their money back.

Question. Why are the poor people depend on informal sources of credit ?
Answer: Poor people depend on informal source of credit because banking facilities are not available everywhere in rural India. Even if they are available, it is much more difficult to get a loan from a bank than taking a loan from informal sources because of wide ranging difficulties. Non-availability of collateral and a guarantor also prevents the poor from getting bank loan :

Question. “Poor households still depend on informal sources of credit.” Support the statement with examples.
Answer: Poor households even now prefer to get credit from informal sector rather than the formal sector due to the following reasons :
(i) Relatives and moneylenders are easily accessible. Still in India several rural areas do not have a bank closeby.
(ii) Norms or rules for lending out money is much strict in formal sector as compared to the informal sector.
(iii) Most poor households are still uneducated. The processes and formalities involved to get a loan sanctioned from formal sector often deter the poor to approach the bank.

Question. What is SHG ? What are the two benefits of SHG ?
Answer: Self Help Group is the association of poor people who pool their monetary resources for mutual monetary help in the form of soft term credit facilities to its members. Following are the two benefits of SHG:
(i) SHG helps its members to acquire credit at reasonable terms.
(ii) It saves the members from the exploitation of informal sources of credit like moneylenders.

Question. Why is cheap and affordable credit important for the country’s development? Explain any three reasons.
Answer:

• (a) It creates opportunities of self employment. e.g.: women in Bangladesh, through cheap affordable credit, set up various jobs like sewing for themselves.
• (b) It helps the poor people to invest in new technology and resources like farmers to implement: buy machines, fertilizers, etc and increase their earning and help in economic development also increasing per capita income of country.
• (c) It helps to expand trade and commerce, development in industries, agriculture, and other sectors, thus leading to increase in GDP and foreign exchange earnings.

Conclusion - Hence, it is an index of country's development.

Source A – Currency
Currency includes paper notes and coins it is a modern form money. Unlike the things that were used as money earlier, modern currency is not made of precious metal such as gold, silver and copper. And unlike grain and cattle, they are neither of everyday use. The modern currency is without any use of its own.
Source B – Reserve Bank of India
In India, The RBI issues currency notes on behalf of the Central Government. As per Indian Law, no other individual or organisation is allowed to issue currency. Moreover, the law legalises the use of rupee as a medium of payment that can not be refused in selling transactions in India. Hence, the rupee is widely accepted as a medium of exchange.
Source C – Deposits with Bank
The other form in which people hold money as deposits with banks. At a point of time, people need only some currency for their day to day needs but beyond that need they deposit the money with the banks and banks pay interest on such deposits. People can withdrew money whenever they want to.

Question. How modern form of money is different from the things used as money earlier ?
Answer: Modern form of money is not made of precious metal and neither it is of everyday use.

Question. Can you refuse payment made in rupees ? Give reason for your answer.
Answer: We cannot refuse payment made in rupee in selling transactions in India as the law has legalises the use of rupee as a medium of exchange.

Question. How can people hold money other than cash ?
Answer: People can hold money as deposits with bank other than cash. For this they get interest from bank.

Long Answer Type Questions

Question. What is money ? What are the modern forms of money ? How has it removed the difficulties of barter system ? OR ‘‘Money has made transactions easy.’’ Justify.
Answer: Money is anything which is generally acceptable as a medium of exchange. Money acts as an intermediary in the exchange process that is why it is called a medium of exchange. Currency (paper notes and coins) and demand deposits withdrawable by cheques are modern forms of money. Money has removed the problem of double coincidence of wants involved in the barter system. Under the barter system, the transactions between two persons were executed through the mutual exchange of goods. For example, person A has got rice and wants a blanket while person B has blanket and wants rice. Both of them have the things which the other one wants. So the transaction here can take place easily. The situation becomes difficult when one of them wants something which the other one does not have. For example, person B has got blanket but he wants milk instead of rice. Now he will have to search for a third person who has milk and wants rice. This becomes highly difficult. Money has made this situation easier by breaking a single exchange transaction for specific goods into two transactions of buying and selling by involving a medium of general acceptability, i.e., money. For example, person A may buy blanket from person B by giving him money while person B may buy milk from someone else who may or may not want rice by paying him that money any time. So the transactions become easier for everyone who does not have to care for mutual wants of goods.

Question. Why is barter system not suitable for a modern economy ? What are the merits of money ?
Answer: Barter system is the system of transaction between two persons which is executed through the mutual exchange of goods. For example, person A has got rice and wants a blanket while person B has blanket and wants rice. Both of them have the things which the other one wants. So the transaction here can take place easily. Such kind of system is suitable for an economy where people have very limited wants, there are few goods and people live in vicinity of each other. Such kind of economy is normally a backward economy. But in modern economy, people’s wants are numerous and innumerable goods and services are produced. Rather, the share of services is much higher in comparison of goods. In such an economy barter system cannot function. The problem of double coincidence of wants will become so complex that it will convert the modern economy into a backward economy. Money has solved this problem of double coincidence of wants. The various merits of money are following :
(i) It has made the buying and selling of goods easier.
(ii) It has removed the problem of double coincidence of wants inherent in barter system.
(iii) It has helped in the expansion of economy.
(iv) It has general acceptability because of legal sanction provided by the government.
(v) It has helped in the production of multiplicity of goods.
(vi) It has removed the problem of limited choice for consumer.
(vii) It has removed the compulsion from the people to accept whatever is available in exchange for goods.
(viii) It has helped in the determination of price of goods and the calculation of national income.

Question. Why are banks necessary for a country ?
Answer: Banks provide a “Yeoman Services” to a country. The modernisation of any economy has been possible with the development of banking system of that country. Following are the reasons which justify the necessity of banks for a country :
(i) Banks mobilise the dormant savings of the country. The surplus money which the people have and don’t need in the near future is accepted by the banks as deposits.
(ii) These deposits of the public provide safety to their funds and income in the form of interest.
(iii) People can withdraw this money whenever they are in need. So these deposits give liquidity to the depositors.
(iv) Banks provide loans to the needy borrowers.
(v) Banks provide loans to the people out of the money deposited by the depositors. This way the banks acts the role of financial intermediary.
(vi) Most of the credit issued by the banks is used for productive purposes which increase the production and employment opportunities in the economy.
(vii) Banks provide such kind of credit services not only to general people, but participate in government loans as well. So this way banks help the government in the development of infrastructural facilities.

Question. Analyse the role of credit for development. OR ‘Credit has its own unique role for development’, justify the statement with argument. OR What is credit ? How does credit play a vital and positive role ? Explain with an example. OR Describe the vital and positive role of credit with example.
Answer: The credit facility is a boon for a country’s development. It represents the expanded purchasing power in the hands of the borrowers to meet their various requirements. It is the sacrifice of the savers which help the borrowers to expand their production and income of the country. It helps in generating those productive resources which could not have been generated in the absence of purchasing power. We can see the practical examples of various business houses like Reliance and Tata who with the help of credit established big business houses and generated large employment. Similar examples may be seen all around us where the people have taken loans to start various businesses, building homes and gaining education etc. All these have contributed a lot in the development of the country and raising the standard of living of the borrowers. But credit helps a borrower only when the terms of credit are reasonable. Unfortunately, these terms of credit are not very much favourable in the informal sources of credit which lead to the exploitation of borrower which may be harmful for the development. Hence, it is for this reason that the formal sources of lending like banks and cooperatives must expand so that the positive contributions of credit may lead to overall development.

Question. What are the merits and demerits of credit ? OR ‘‘Credit is useful as well as harmful, it depends on the risk involved.’’ Support the statement with examples.
Answer: Credit is a facility in which a lender extends a loan to a borrower to fulfill his needs with a promise from the borrower to return the borrowed money to the lender with predetermined interest. Such credit may be in terms of money as well as goods and services. The credit facility has following merits and demerits :
Merits :
(i) It provides much needed purchasing power to the borrower which he lacks.
(ii) It helps the borrower to mobilise the productive resources.
(iii) It helps to increase the production of the borrower and the country.
(iv) It helps to raise the income and standard of living of the borrower.
(v) It helps the lender to earn income in the form of interest.
(vi) It helps to utilise surplus money of lender which is not in immediate use.
Demerits :
(i) It puts a burden of payment of excess amount on the borrower. The excess amount refers to the sum of principal and interest.
(ii) It puts the borrower in stress of losing an asset or reputation if he fails to return the borrowed money on time.
(iii) If the borrower looses the loan amount and is not supported by the financial or asset backup, he may fall into the debt trap.
(iv) If the terms of credit are unfavourable, the borrower may face difficulties in carrying on with the credit.

Question. Compare formal sector loans with informal sector of loans regarding interest only.
Answer:

Question. ‘‘The credit activites of the informal sector should be discouraged.’’ Support the statement with arguments.
Answer: The credit activities of the informal sector should be discouraged because :
(i) 85% of loans taken by the poor households in the urban areas are from informal sources.
(ii) Informal lenders charge very high interest on their loans :
(iii) There are no boundaries and restrictions.
(iv) Higher cost of borrowing means a larger part of the earnings of the borrowers is used to repay the loan.
(v) In certain cases, the high interest rate for borrowing can mean that the amount to be repaid is greater than the income of the borrower.
(vi) This could lead to increasing debt and debt trap, therefore the credit activities of the informal sector should be discouraged.

Question. In what ways does the Reserve Bank of India supervise the functioning of banks ? Why is this necessary ? OR How does Reserve Bank of India play crucial role in controlling the formal sector loans.
Answer: Reserve Bank of India (RBI) supervises the functioning of the banks in the following manner :
(i) First of all RBI determines the necessary reserve ratios for the banks such as Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) to be maintained by them. The reserves are maintained by the banks to deal with the liquidity crunch if that may ever arise. These reserves are calculated on the basis of the deposits with the banks.
(ii) The banks have to periodically submit reports with RBI regarding the credit portfolio. They have to ensure that they do not breach any of the instructions given by RBI on the management of credit portfolio. This helps the RBI to contain any risk situations that may emerge due the lending practices of the banks.
(iii) RBI also ensures that the banks are not being partial in providing loans : It means that RBI ensures that the banks are lending not only to the big businessmens or companies but also taking care of the weaker sections of the society like small farmers and agricultural labourers in rural areas and small businessmen, labourers, small artisans etc. in urban areas. Lending to such weaker sections may be included in priority sector lending of the banks.
(iv) The RBI may supervise the expansion pattern of the banks in order to ensure that the banks are not only opening their branches in urban areas only but also expanding their facilities in rural and remote areas like hilly areas of the country.

Question. In India, about 80 per cent of farmers are small farmers, who need credit for cultivation. (i) Why might banks be unwilling to lend to small farmers ? (ii) What are the other sources from which the small farmers can borrow ? (iii) Explain with an example how the terms of credit can be unfavourable for the small farmer. (iv) Suggest some ways by which small farmers can get cheap credit.
Answer: (i) Banks need proper documentation and reasonable collateral to provide any kind of loan. Small farmers many not have necessary documentation and reasonable collateral because his collateral may already have been mortgaged or he may be a tenant on the land or may be very poor. In all these situations his chances of getting loans from the bank are very less.
(ii) The other sources through which the farmers can take loan from are the cooperative society, moneylenders, agricultural traders and self help groups etc.
(iii) Suppose, Gopal is a farmer who wants loan from a local moneylender for the purpose of crop production. Now the moneylender extends him loan on 5 % rate of interest per month on cumulative basis. As collateral the moneylender keeps the papers of his land. Another condition the moneylender puts before him is that after this crop season, Gopal will be allowed to use his land only when he repays the whole loan or repays loan by selling his land or does “Begar” for the money lender till he repays the entire loan.
(iv) Small farmers can get cheap credit from banks, cooperative societies or self help groups.

Question. Write a note on the “Cooperative”.
Answer: Cooperative or the cooperative society is an organisation of persons which is based on the principle of mutual cooperation. The concept of cooperation refers to the superiority or unity of weaker sections or consumers over the exploitative powers of the lenders, traders or middlemen. It is generally an organisation of people from the same profession and not necessarily formed by poor people only. These are generally the registered bodies. The agriculturists and labourers may form such cooperative society for their welfare. The objective of such cooperative society may be to :
(i) Promote a sense of security among its members.
(ii) Stop the exploitation of the members from the exploitative practices of informal sector loans.
(iii) Provide a formal source of credit to its members.
(iv) Make available credit on favourable terms to its members. The capital of the cooperative society is generated by the contribution by members in the form of deposits. With these deposits as collateral, the cooperative can obtain a loan from the bank. These funds can be used to provide loans to members. Once these loans are repaid, another round of lending can take place. These loans can be provided to its members for the purchase of equipment, crop production, construction of houses etc.

Question. Why is it necessary for the banks and cooperative societies to increase their lending facilities in rural areas ? Explain.
Answer: In the rural areas, people are often found to borrow from moneylenders which comprise the unorganised sector. This usually has higher cost of borrowing which means a larger part of the earnings of the borrowers is used to repay the loan. Hence, borrowers have less income left for themselves. This could lead to increasing debt. Thus, it is necessary that banks and cooperatives increase their lending particularly in the rural areas, so that the dependence on informal sources of credit reduces. Borrowing from the organised sector like banks and co-operatives would lead to higher incomes and many people could then borrow cheaply for a variety of needs. They could grow crops, do business, set up small-scale industries etc. They could set up new industries or trade in goods. Cheap and affordable credit is crucial for the country’s development. Thus, the formal sector loans need to expand, it is also necessary that everyone receives these loans.

Question. How can the formal sector loans be made beneficial for poor farmers and workers ? Suggest any five measures.
Answer: People obtained loans from various sources. The various sources of loans is categorised into formal sector loan and informal sector loan. The formal sector loans are given by banks and cooperatives. Poor people and workers get much of their loans from the informal sectors, which is not only exploitative but also charges very high interest rate. These make the poor people and worker to fall back in poverty. The measures to make formal sector loan beneficial for poor farmers and workers are :
(i) The formal sector like banks and cooperatives should lend more to poor people and worker, particularly in rural areas.
(ii) The formal sector should provide cheap and affordable credit.
(iii) The formal sector should ensure that every one receives loan.
(iv) Providing self help group bank linkage.
(v) There should be more number of cooperatives and banks in rural areas.

Question. Why do you think that richer sections of the society has better access to formal sector loans while poor sections do not have ?
Answer: The richer sections of the society, whether urban or rural have better access to the formal sources of credit due to the following reasons :
(i) The richer sections of the society are comparatively better educated and they can understand very well the formal procedures of getting credit from the formal sources of credit. Poor people lack such understanding.
(ii) The richer sections of the society have proper documents, guarantees or collateral which they can offer to the bank or any other institution. Poor sections generally lack all such things.
(iii) The richer sections of the society have better repayment capacity. So their chances of back tracking on the repayment are lesser. In the case of poor sections such chances of failure of repayments may be higher.
(iv) The richer sections of society have regular interactions with the formal sector institutions in terms of deposits and withdrawals. Such kind of interaction increases the trust of the formal sector in richer sections of the society. Poor sections of society lack such interaction and hence the trust too.

Question. What steps do you think are necessary for banks to extend credit facilities to the poor sections of the society ?
Answer: Following steps are necessary for the expansion of credit facilities to the poor sections of the society :
(i) The banking facilities must be expanded to every corner of the country whether urban or rural, so that the banking facilities can cover all the families.
(ii) An awareness campaign must be run continuously so that the poor sections can become aware of the banking facilities.
(iii) Poor sections must be encouraged to open bank accounts and deposit money no matter how small that may be. This will develop a kind of banking habit among them. For this purpose, a bit higher interest rate may be offered to them.
(iv) Credit facility with softer terms must be designed for the poor sections.
(v) Process of credit must be made simpler for them.
(vi) Banks must provide as much as possible loans to cooperatives and self-help groups.
(vii) RBI must take steps to regularise the practices of informal sector.

Question. Raman is a leading businessman of the city. He wants to expand his business. Why do you think he will get loan from banks ?
Answer: Following are the various reasons which indicate that there is a great possibility of Raman getting loans from formal sources like bank :
(i) As Raman is a leading businessman of the city, he may be rich. The richer sections of the society are comparatively better educated and they can understand very well the formal procedures of getting credit from the formal sources of credit.
(ii) The richer sections of the society have proper documents, guarantees or collateral which they can offer to the bank or any other institution. Poor sections generally lack all such things.
(iii) The richer sections of the society have better repayment capacity. So, their chances of back tracking on the repayment are lesser. In the case of poor sections such chances of failure of repayments may be higher.
(iv) The richer sections of society have regular interactions with the formal sector institutions in terms of deposits and withdrawals. Such kind of interaction increases the trust of the formal sector in richer sections of the society. So, the above mentioned are some of the reasons which indicate that Raman may get loan from a bank easily.

Question. Manav needs a loan to set up a small business. On what basis will Manav decide whether to borrow from the bank or the moneylender ? Discuss.
Answer: In order to decide whether to take loan from a bank or moneylender, Manav has to give attention to the following factors :
(i) Availability of banks in the area : Only when banks are available in the area, Manav can take loan from it. Otherwise he will have to resort to a moneylender.
(ii) Availability of necessary documents and collateral : If Manav has got necessary documents and collateral, only then he can take loan from the bank. Otherwise he will have to go to moneylender. Moneylenders may sometimes lend without collateral and documents if they know the borrower personally.
(iii) Rate of Interest : If Manav does not want to pay higher rate of interest then he will have to take loan from the bank because the moneylenders charge very high rate of interest.
(iv) Other terms and conditions : Other terms and conditions like time of loan, mode of repayment etc. are some other factors which he may have to consider before taking loans because banks may not be very flexible in terms and conditions while moneylenders may be.

Question. ‘‘Self Help Groups’ help borrowers to overcome the problem of lack of collateral.’’ Examine the statement. OR How is the concept of Self Help Groups important for poor people ? Give your view point.
Answer: ‘‘Self Help Groups’’ help borrowers to overcome the problem of lack of collateral. We explain the system of working by ‘‘Self Help Groups’’.
(i) In a self help group most of the important decisions regarding the savings and loan activities are taken by the group members.
(ii) Group members are well known to each other. They belong to the same society.
(iii) Also, it is the group which is responsible for the repayment of the loan.
(iv) Any case of non-repayment of loan by any member is followed up seriously by other members in the group.
(v) Due to this feature, banks are willing to lend to the poor woman when organised in SHGS, even though they have no collateral as such.

Question. What are Self Help Groups ? How do they work ? Explain.
Answer: Self Help Groups are the organisations of the rural poor, people of same socio-economic background to pool their savings and provide loans to their members. Work of self-help groups :
(i) Generally self help groups consist of 15 – 20 members.
(ii) Members belong to one neighbourhood.
(iii) They meet regularly.
(iv) Their savings varies form \( ₹ \) 25 to \( ₹ \) 100 or more.
(v) Only members can take loans from the group itself.
(vi) The group charges interest less then the moneylenders.
(vii) All the important decisions regarding savings and loans are taken by the members of the group.
(viii) The group is collectively responsible for the repayment of the loan.
(ix) The regular meeting of the group provides a platform to discuss and act as a variety of social issues such as health, nutrition, domestic violence etc.

Arun is supervising the work of one farm labourer. He has seven acres of land. He is one of the few persons in Sonpur to receive bank loan for cultivation. The interest rate on the Loan is 8.5 % per annum and can be repaid anytime in the next three years. He plans to repay the loan after harvest by selling a part of the crop.

Question. What type of credit Arun has taken ?
Answer: Arun has taken credit from formal sector.

Question. At what rate of interest Arun gets loan ?
Answer: 8.5%

Question. In how many years, he can pay the loan ?
Answer: 3 years

Source/Extract Based Questions

Salim, has received an order from a large trader in town for 3,000 pairs of shoes to be delivered in a month time. To complete production on time, Salim has to hire a few more workers for stitching and pasting work. He has to purchase the raw materials. To meet these expenses, Salim obtains loans from two sources. First, he asks the leather supplier to supply leather now and promises to pay him later. Second, he obtains loan in cash from the large trader as advance payment for 1000 pairs of shoes with a promise to deliver the whole order by the end of the month. At the end of the month, Salim is able to deliver the order, make a good profit, and repay the money that he had borrowed.

Question. The passage given above related to which of the following options?
(a) Different credit situations
(b) Trading and selling
(c) Smart manufacturing
(d) Complex show manufacturing
Answer: (a)

Question. According to the given passage, which one of the followings was the benefit of taking credit?
(a) To meet the production expenses
(b) To complete production on time
(c) To increase his earnings
(d) All of the above
Answer: (d)

Question. Salim was pushed to take credit because of _______ .
(a) Less work force and raw material
(b) Sudden high demand for shoes
(c) Both (a) and (b) are correct
(d) Both (a) and (b) are incorrect.
Answer: (b)

Question. What could be the reason that Salim did not approach bank for loan?
(a) Lack of trust with bank
(b) No bank in the vicinity
(c) High Interest rate
(d) Leather supplier and trader are known to him
Answer: (d)