MONEY AND

CREDIT
MADE BY :HIMANSHU AHIRWAR
X-A

MONEY AND CREDIT

BARTER SYSTEM

It is a system in which goods are

exchanged for other goods.

LIMITATIONS OF BARTER
SYSTEM

Lack of double coincidence of wants

Difficulty of storing value.

Differed payments are difficult

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

OLD FORMS OF MONEY

MODERN FORMS OF
MONEY

RESERVE BANK OF INDIA

DEMAND DEPOSITS ANOTHER FORM OF MONEY

BANKS LOAN ACTIVITIES

CASH RESERVE

CREDIT

Credit
Credit (loan)
(loan) refers
refers to
to an
an
agreement
agreement in
in which
which the
the
lender
supplies
the
lender
supplies
the
borrower
with
money,
borrower
with
money,
goods
goods or
or services
services in
in return
return
for
for the
the promise
promise of
of future
future
payment.
payment.

TERMS OF CREDIT

Collateral
Collateral security
security
Documentation
Documentation required
required
Term
Term of
of the
the loan
loan
Mode
Mode of
of repayment
repayment
Rate
Rate of
of interest
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
The informal
informal lenders
lenders include
include
moneylenders,
moneylenders, traders,
traders, employers,
employers,
relatives
relatives and
and friends,
friends, etc.
etc.
There
There is
is no
no organisation
organisation which
which
supervises
supervises the
the credit
credit activities
activities of
of
lenders
lenders in
in the
the informal
informal sector.
sector.
They
They collect
collect high
high rate
rate of
of interest
interest
They
They do
do not
not follow
follow any
any rules
rules or
or
procedures
procedures

SOURCES OF CREDIT IN
RURAL AREAS

Money Lenders - 30%

Other informal sources 18%

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

Poor
people
do
not
have
anything
to
offer
as
Poor people do not have anything to offer as
collateral
collateralsecurity
security
Banks
Banksare
arenot
notavailable
availableininmany
manyrural
ruralareas
areas
Banks
Banksdo
donot
notconsider
considerthe
thepoor
poorpeople
peopleas
as
credit
creditworthy.
worthy.
Poor
Poorand
andignorant
ignorantpeople
peoplefind
findititdifficult
difficultto
to
produce
producethe
theneeded
neededdocuments.
documents.

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