CLASS-X �SOCIAL SCIENCE-ECONOMICS

MONEY AND CREDIT

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Prepared by…

Bhaskara Achari.V

PGT-History

JNV MAHABUBNAGAR-TS

BARTER SYSTEM

• A system in which goods are exchanged for other goods is known as Barter System.

LIMITATIONS OF BARTER SYSTEM

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• Lack of double coincidence of wants

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• Difficulty of storing value.

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• Differed payments are difficult

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• Some goods are indivisible

MONEY

• Anything which is used as a medium of exchange, store of value and standard of differed payments is called money

FUNCTIONS OF MONEY

• Medium of Exchange.

Store of value

Standard of Differed Payments

OLD FORMS OF MONEY

MODERN FORMS OF MONEY

Bank Deposits

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Cheque

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Credit

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RESERVE BANK OF INDIA

DEMAND DEPOSITS - ANOTHER FORM OF MONEY

BANK’S LOAN ACTIVITIES

CASH RESERVE

CREDIT

• 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.

TERMS OF CREDIT

• Collateral security
• Documentation required
• Term of the loan
• Mode of repayment
• Rate of interest

IMPORTANCE OF CREDIT FOR FARMERS IN RURAL AREAS

• Farmers need credit to buy seeds, fertilisers pesticides, electricity, equipments,etc.
• There is a minimum period of three to four months between the time when the farmers buy these inputs and when they sell the crop.
• Farmers usually take crop loans at the beginning of the season and repay the loan after harvest.

FORMAL SOURCES OF CREDIT

• Commercial Banks, co-operative societies and Regional Rural Banks constitute the formal sector of credit
• The Reserve Bank of India supervises the functioning of formal sources of loans.
• They collect low rate of interest.
• They follow some well defined rules and procedures

INFORMAL SOURCES OF CREDIT

• The informal lenders include money lenders, traders, employers, relatives and friends, etc.
• There is no organization which supervises the credit activities of lenders in the informal sector.
• They collect high rate of interest
• They do not follow any rules or procedures

SOURCES OF CREDIT IN RURAL AREAS

• Money Lenders - 30%
• Other informal sources – 8%
• Co operative Societies – 27%
• Banks – 52%

CREDIT IN URBAN AREAS

• Poor takes 85% credit from informal sources and only 18% from banks and other formal sources
• Rich takes more than 90% of loans from formal sources
• So formal sources mostly serve the rich people

WHY ARE THE BANKS NOT ADVANCING LOANS TO THE POOR PEOPLE?

• Poor people do not have anything to offer as collateral security
• Banks are not available in many rural areas
• Banks do not consider the poor people as credit worthy.
• Poor and ignorant people find it difficult to produce the needed documents.

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SELF HELP GROUP

SELF HELP GROUP

• A SHG has 15-20 members, mostly women of a neighbourhood
• Each member contributes some money
• Members can get small amounts as loans from the group. Rate of interest is low and it is decided by the members.
• After 2 years the group can get loans from the bank

IMPORTANCE OF SHGs

• Members can get loans at low rate of interest.
• The group will encourage the members to find self employment
• Members can discuss and act on many social issues such as health, nutrition, domestic violence, etc.
• Banks will give loans to SHGs without any collateral

QUICK REVIEW

• Money is any good that is widely used and accepted in transactions involving the transfer of goods and services from one person to another.
• ROBERTSON :- “ANY COMMODITY THAT FULL FILLS THE RESPONSIBILTY OF PAYMENT AND OCCUPATION IS CALLED MONEY”
• G.D.H.KAUL :-“ANY GOODS WHICH IS READILY ACCEPTED TOWRDS PAYMENTS AND CREDIT IS CALLED MONEY.”
• KENT :- “ANY THING WHICH IS READILY ACCEPTED A NEASURE OF VALUE DURING TRANSACTION IS CALLED MONEY.”

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RECAPITULATION

• What is a money?
• What are the functions of money?
• What are the formal sources of credit?
• What are the informal sources of credit?
• What is CRR?
• What is a Repo rate?

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THANK YOU