In this post, money and Credit class 10 notes are elaborately discussed that are helpful for board exams preparation of Class 10 Economics chapter 3 Money and Credit.Here there is explanation of money as medium of exchange, double coincidence of wants, barter System, traditional and modern form of money,types of credit and SHGs.After reading the notes of chapter 3 Money and credit class 10 Economics students would feel confident in his exams.
Chapter 3 Money and credit Notes
Money as a Medium of Exchange
Barter System
A system in which goods are directly exchanged with goods or services without the use of money. Double coincidence of wants is an important feature of it.
Double Coincidence of Wants
When both parties have to agree to sell and buy each others commodities.This is known as Double coincidence of wants. What a person desires to sell is exactly what the other wishes to buy
Money
In an economy, money by providing the intermediate step help to eliminates the need for double coincidence of wants. It is no longer necessary for the customer to look the person who requires what he produces.Since money acts as an intermediate in the exchange process, It is called a medium of exchange.
A person holding money can easily exchange it for any commodity or service that he or she might want.Thus everyone prefers to receive payments in money and then exchange the money for things that they want.
Modern Forms of Money
In the early ages, grains and cattle were used as money. Thereafter the use of metallic coins – gold, silver, copper coins – a phase which continued well into the last century came into use. Now, the modern forms of money include currency – paper notes and coins.
They are accepted as medium of exchange as it is authorised by the government of the country. modern currency is without any use of its own
Currency
In India, the Reserve Bank of India issues currency notes on behalf of the central government. No other individual or organisation is allowed to issue currency. So the rupee is widely accepted as a medium of exchange in India.
Moreover, the law legalises the use of rupee as a medium of payment that cannot be refused in settling transactions in India. No individual in India can legally refuse payment made in rupees. Hence,the rupee is widely accepted as a medium of exchange.
Deposits in Banks
The other form in which people hold money is as deposits with banks. People deposit their extra cash with the banks by opening a bank account in their name. Banks accept the deposits and also pay an amount as interest on the deposits.
Demand Deposits
The deposits in the bank accounts can be withdrawn on demand, these deposits are called demand deposits. The facility of cheques against demand deposits makes it possible to directly settle payments without the use of cash. Since demand deposits are accepted widely as a means of payment, along with currency, they constitute money in the modern economy.
Cheque
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.
Loan Activities of Banks
Banks keep only a small proportion of their deposits as cash with themselves. These days banks in India hold about 15% of their deposits as cash. This is kept as a provision to pay the depositors who might come to withdraw money from the bank on any given day. Banks use the major portion of the deposits to extend loans. There is a huge demand for loans for various economic activities. Banks charge a higher interest rate on loans than what they offer on deposits. The difference between what is charged by borrowers and what is paid to depositors is their main source of income for banks.
Two Different Credit Situations
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.
Here are two examples which help you to understand how credit works.
In the first scenario, a person gets leather from leather supplier in promise of payment later in future and also takes advances from manufacturers to meet the needs of extra labour, raw material and other products And by the end of the year, he or she has made a big profit from manufacturing operations and is able to repay the loan. As a result, the person is in a better position than previously.
ii. In the second scenario, a woman borrows money from moneylenders for crop production . Crop production involves considerable costs on seeds, fertilisers, pesticides, water, electricity, repair of equipment, etc In first year,she was not able to repay the loan and again take loans but in second year, production was normal that could not pay the loan of two years.And by the end of the year, he or she has fallen into a financial trap. As a result, that person is in a worse situation than before.
In one situation credit helps to increase earnings and therefore the person is better off than before. In another situation, because of the crop failure, credit pushes the person into a debt trap.
Chapter 4 Globalisation And the Indian Economy Notes
Terms of Credit
Every loan agreement specifies an interest rate that the borrower must pay to the lender along with the repayment of the principal. In addition, lenders also demand collateral (security) against loans.
Collateral (Security) is an asset that the borrower owns (such as land, building, vehicle, livestock, deposits with banks) and uses this as a guarantee to a lender until the loan is repaid. If the borrower fails to repay the loan, the lender has the right to sell the asset or collateral to obtain payment.
Interest rate, collateral and documentation requirement and the mode of repayment, together, are called the terms of credit. It may vary depending on the nature of the lender and the borrower.
Formal Sector Credit in India
Cheap and affordable credit is crucial for the country’s development. The various types of loans can be grouped as follows:
Formal sector loans:
Loans from banks and cooperatives come in this category.
Functions of Reserve Bank of India in Formal Loans
- The Reserve Bank of India supervises the functioning of formal sources of loans.
- RBI monitors the banks in maintaining cash balance out of the deposits it recieves from the depositors
- RBI overlooks that the bank give loans not just to large profit making bussine but also to small farmers,small and medium scale industries and the small borrowers.
- RBI ask banks to submit information on how much they are lending, to whom, at what interest rate, etc.
Demerits of Informal Sector of Loans
- . No organisation which supervises the credit activities of lenders in the informal sector.
- These are the loans from moneylenders, traders, employers etc who lend at whatever interest rate they want.
- Nobody stops them from using unfair means to get their money back.
Debt Trap
High rate of interest for borrowing in informal sector means amount to be repaid is greater than income of borrowers if it is for long period of time.It could lead to increasing debt on borrowers and he come in debt trap.
Formal Credit and Development
When formal sector includes banks and cooperatives provides loans at cheap rate of interest then
- more people could borrow for fulfilling various needs.
- Farmers could grow two or more crops that could assist him to improve his financial conditions and can come out of debt trap.
- Some people can start new businesses which increase the level of income of both businessmen and people employed by him.
- People in rural areas can set up small scale industries that would provide employment there and can stop urban migration and keep away from various social problems like health issues.
- • Cheap credit also help to reduce poverty, employment and social problems that poor people face as income increases.
So, cheap and affordable credit is crucial for the country’s development.
Who gets what
- 85 percent of loans taken by poor people in urban areas from informal sources.
- 90 percent of rich people take loans from formal sources .
- Similar trends is found in rural areas also.
- Rich households avail cheap and affordable credit and poor households pay large borrowing that increase gap between rich and poor.
Self Help Groups for the Poor
Cause of the emergence of SHGs
- Poor households depends on informal sources to meet their financial needs.
- In rural India, getting loan from bank is more difficult than informal sources as banks ask for collateral which poor doesn’t have .
- Getting loan from informal sources like money lender is easy for poor without collateral as he knows him.
- Money lender charge high rate of interest and don’t maintain transaction records properly and harass the poor.
So,a new and innovative way was started to address these issues in rural India known as (SHGs).
Meaning
SHGs are small groups of poor people particularly women who encourage their members to save small amounts of money regularly. A typical SHG includes 15-20 members who meet and save on a regular basis, usually from the same neighbourhood.
Advantages of Self Help Group (SHG):
- It helps members to take small loans from it without collateral.
- Interest rate of loan is much less than what money lender charges.
- SHGs are the foundational block of the rural poor’s organisation.
- Bank offers loans on the name of SHGs,if it functions efficiently
- It encourages women to become financially self-sufficient by starting new enterprises together.
Why bank give loans to SHGs
Important decisions regarding the savings and loan to be granted – the purpose and amount, interest to be charged, repayment schedule etc are taken by group members itself.Any case of non- repayment of loan by any member is tackle seriously by others members of the group.These important features make SHGs eligible to get loan from bank without collateral.
Social Responsibility by SHGs
The group’s regu meetings give a forum for discussing and taking action on a variety of social issues such as health, nutrition, domestic violence, and so on.