Money and Credit Question Answers: NCERT Class 10 Social Science - Understanding Economic Development

In situations with high risks, credit might create further problems for the borrower. This is also known as a debt – trap. Tracking credit involves a certain amount of loan that is taken by a borrower from a lender at a high-interest rate . it the borrower fails to pay back the loan amount due to some loss in his job or business, he further falls in the trap of credit. He has to repay the credit along with the interest applied by the lender. This increases the problems for the borrower. In such situation he is focused to give up his collateral or asset used as the guarantee to the lender. For example, if a farmer takes a loan for crop production and crop fails , then it becomes nearly impossible for him to repay the loan amount along with the charged interest. To repay the loan the farmer may sell a part of his land making the situation worse than before. Due being unable to repay the loan and harassed by the lenders, many times farmer commit suicide. Thus, in situations with high risk, if the risks , if the risks affect a borrower badly, then he ends up losing more than what he would have without taking the loan.

Double coincidence of wants occurs when goods or commodities are exchanged without the use of money. Here , both the individuals who exchange goods are actually in need of those goods. In a barter system where goods are directly exchanged without using money, double coincidence of wants is an essential feature. By serving as a medium of exchanges, money removes the need for double coincidence of wants and the difficulties associated with the barter system. Now, no specific buyer or seller is required for interchanging of products. For example, a farmer has to sell wheat to someone needs this and with the earned money he can buy cereals for him as well.

Books encourage the people with surplus money to invest their money with them. In return those people are paid a certain rate of interest for the same. Banks hold about 15 per cent of their deposits as cash. This is kept as provision to pay the depositors who might came to withdraw money from the bank on any given day. They use the major portion of the deposits to extend loans to those who need money. Banks charge a higher interest rate on loans than what they offer on deposits. The difference between the two rates is their main source of income.

Reserve bank of india and guaranteed by the government are written on top a 10 rupee note. In india , currency is issued by the reserve bank of india on behalf of the central government. So these two statements signify that the currency is authorized of guaranteed by the central government. That is the Indian law legalizes the use of this 10 rupee note as a medium of payment anywhere in the country.

Formal success of credit are the government authorized organization that are eligible to lend money to people. We need to expand these sources of credit in india due to the following reasons:

- The informal sources are not registered and lend money to people at very high interest rates
- With increased number of formal resources, people will be able to take loans at lesser interest rates and use them to grow their business. This will ultimately help in the development of the country.

- Informal lenders sometime start harassing the borrower if he is not able to repay the loan at time. However, this is not case with the formal sources of credit.

The basic idea behind the SHGs for the poor is to provide a financial resources for them by organize rural poor, in particular women into small self hero groups (SHGs) and pool (collect) their savings. These group also provide loan to their members at low interest rate. Thus the main objectives of the SHGs is to increase small scale employment opportunities for the rural people. These groups not only help women to become financially self-reliant, the regular meetings of the group provide a platform to discuss act on a variety of social issues such as health, nutrition , domestic violence , etc.

The banks might not be willing to lend certain borrowers due to the following reasons:

- A few people fail to provide the required set of documents to get a loan.

- There are some people who have not repaid pervious loans. Such borrowers are come in the defaulters list. Banks might not be willing to lend them further.

- The banks might not be willing to lend entrepreneurs who are going to invest in the business with high risks.

- The banks might not be willing to lend those people who earn irregular incomes or have no fixed salary because in such cases chances of repayment of the loan are very less.

The reserve bank of india supervises the functions of banks in the following server:
- It monitors the banks in actually maintaining cash balance.

- It ensure that the banks give loans just to profit – making businesses and traders but also to small cultivators small scale industries to small borrowers etc.

- Banks have to submit information to the RBI on their credit activities like how much they are leading to whom at what interest rate etc.

Credit is one of the major aspects that determine a country’s development. There is a huge demand for loans for various economic activities. Cheap and affordable loans given people an opportunity to develop their business. Credit plays a very crucial role in agricultural activities. People can borrow money and use it to adopt modern farming method to increase the crop production and grow crops which are more reliable than the traditional methods. By sanctioning loans to developing industries and trade banks provide them with the necessary aid for improvement.

Manav will decide whether to borrow from the bank or the money lender on the basis of the following things:

- Comparison between the rate of interest charged by the two sources.
- Availability of the eligible documents required by the bank to approve his loan.
- Mode of repayment of the loan.

(a) Banks ask for proper document before providing loans. But the small farmers might not be able to provide such documents. In addition to this there is possibility that the small farmers fail to repay the loan if their crop gets ruined due to dome reason. So banks might not be willing to lend to small factors as there are high risks.

(b) Apart from the banks, other sources from which the small farmers can borrow include informal sources of credit like local money lenders, agricultural traders, nig landlords, cooperatives SHGs etc.

(c) The terms of credit can be unfavorable for the small farmer can be explained with the help of the following example: It a farmer borrows money from the bank during the harvest season his crops are ruined. Then he small not be able to repay the loan to the bank. He might have to sell a part of his land to repay the amount. In such condition he will further fall into the debt trap.

(d) The small farmers can get cheap from the different sources like banks, agricultural cooperatives and SHGs.

(i) Poor
(ii) High
(iii) Reserve bank of india
(iv) Deposits
(v) Collateral

(i) (b)
(ii) (c)