Money and Credits

Submitted To : Mrs. Iris Dhira

Aggarwal
Submitted By : Hitesh Sharma
Class : 10th A
Barter system : The barter system was used before the advent of money.
People used to exchange one thing for another in this system.

Double Coincidence of wants: The double coincidence of wants is the major drawback of the
barter system. It can be very difficult to find a person who can fulfill this condition. Suppose
you want to barter your MP3 player with a game console, then you need to find a person
who wants to barter his game console for an MP3 player.
Money : Money is a means by which we can get something in
exchange. Initially, coins came into use. The coins were initially made of
precious metals; like gold and silver. When the precious metals became too
precious, ordinary metals were being used for making coins. Paper money or
currency notes gradually took place of coins; although coins of smaller
denominations are still in use.
The currency notes and coins are issued by the government of an authorized
body. In India, the RBI (Reserve Bank of India) issues currency notes. On
the Indian currency note, you can find a statement which promises to pay the
bearer the amount which is mentioned on the currency note.
Other Forms of Money
Deposits with banks
Credits
Credits/debit Cards
Terms of Credit :

People often need to borrow money for various purposes.

Many businessmen need to borrow to buy raw materials
and machineries. Many farmers need to borrow to buy
seeds, fertilisers, farm equipments, etc. People usually buy
vehicles and houses by borrowing from banks.

Every loan agreement specifies terms and conditions;

regarding the rate of interest and term of payment. In most
of the cases, the banks fix an EMI (Equated Monthly
Installment) for repayment of loan.
Collateral: An asset which is owned by the
borrower and is used as a guarantee to a lender until
the loan is repaid is called the collateral. Land, house,
vehicle, livestocks, deposits with banks, insurance
policy, gold, etc. are examples of assets. If the
borrower fails to repay the loan, the lender reserves
the right to sell the collateral to obtain payment.
Terms of Credit: The terms of credit include rate
of interest, collateral and mode of repayment.
The terms of credit varies from one loan
agreement to another and also on the nature of
the lender and the borrower.
Sources of Credit :
Formal sector
Informal sector
 Formal Sector: The formal Sector comprises of banks and cooperative societies.
Informal Sector: The informal sector consists of money lenders and friends and relatives,
merchants and landlords.
The following diagram shows share of different sources of credit in rural households in India in 2003.
About The Sectors Sectors

While the formal sector is bound by the rules and regulations of the RBI and
charge the prevalent rate of interest as per RBI guidelines; the informal
lenders are not bound by such rules. The informal lenders usually charge a
very high rate of interest. A higher cost of borrowing is often detrimental to
the borrower. It usually results in a debt trap for the borrower. The borrower
is seldom able to escape the never ending cycle of loan repayment.
Many people are too poor to qualify the requirements of credit-worthiness of
banks and cooperatives. There are many others who may not have enough
documents; like residential certificate or income certificate. Such people are
usually at the mercy of informal lenders.
 Self Help Groups
Self Help Groups (SHGs) are recent phenomena. An SHG is comprised of
small number of people; like 15 – 20 members. The members pool their
savings. The collection is then utilised to lend small amounts of money which
may be required by any of the members. The group charges interest on the
loan. The arrangement of loans through Self Help Groups is also known as
microfinance because the small amount of loan is involved.
It was the Grameen Bank of Bangladesh which began experimenting with
microfinance. The founder of Grameen Bank, Mohammad Yunus was
conferred with Nobel Prize in 2006 for his efforts at improving the lot of the
poor.
SHGs have helped immensely in reducing the influence of informal lenders in