Money and credit

• barter system is a system in which exchange of goods is done directly without any use of money. here both buyer and seller agrees to buy each other commodities . this is also knows as double coincidence of wants
• 1. currency is a form of money , including coins and bank notes, that is accepted as a means of payment
  2. in india RBI issues the curreency notes on the behalf of central gov.
  3. the law legalises the use of 'rupee' as a medium of echange which no one can refuseee
  4. thus 'rupee' is acepted as a medium of exchange
• banks - the other form where ppl put their money

  deposting in banks is safe and ppl get interest on the deposited money

  the deposited money can be withdraw on demand , thus known as demand depoits
• a cheque is a paper instructing bank to pay a specific amount from the persons bank to the person in whose the cheque has been issued.

  the cheque facility make it easier to settle payment without any use of cash
• 1. bank meditate between the depositer and the borrower
  2. they charge a higher rate of interest than what they offer on deposits
  3. the difference between both the interest is the main source of income for banks
  4. in india only 15% is kept with bank other amount is given as loans
• the credit is an argument in which the lender supplies borrower with money , goods and services , in return with the promise of future payment
• credit can be both good and bad , as in one situation it can increase other persons earnings while on the other hand it can put a person into a debt trap
• debt trap is a situation in which is is very hard or nearly impossible to repay the loan.

  it is generally due to higher rate of interest
• terms of credit is a set of conditions between lender and the borrower on which the loan is given.

  it may include duration of credit , rate of interest and other related conditions.
• collateral is an asset the borrower owns eg. land , vehicle etc. on which he/she gurantees to repay the loan

  if the borrower fails to repay the loan , the lender has the right to sell the collateral and obtain the money
• source of credit for small farmers are

  1. loan from moneylenders
  2. loan from employees
  3. loan from trader
  4. loan from banks
• Formal sector

  1. banks , coorperatives comes under formal sector
  2. RBI is there to supervise them
  3. RBI ensures that bank does not gives loans just for profit making to big buisnessmen and traders but also to small borrowers
  4. bank have to regularly give information to RBI that to whom they have lended the loan , at what rate interest etc.
• Informal sector

  1. loans from moneylenders, friends , relatives comes under informal sector
  2. there is no one to supervise them
  3. they can charge at whatever rate of interest they want to
  4. there is no one to stop them from using unfair means to obtain their money
• 1. SHG'S are a group of 15-20 members who pool their savings regularly. their savings can vary from 25-50 or depends upon the person's ability
  2. after a year or two they are capable enough to take loans from banks
  3. if a member fails to repay the loan The Other can share its loan and this ability allows the banks to lend the money to these groups
  4. a member can directly take loan from these groups. The members regularly meet to discuss upon the social problems