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MIT-V: UNDERSTANDING ECONOMIC DEVELOPMENT, of, , MONEY AND CREDIT, , BASIC CONCEPTS, Money as a medium of Exchangge, , 0, , Both parties have to agree to sell and buy each others commodities. This is known as double, coincidence of wants., , i), , system where goods, , In a barter, , directly exchanged, , are, , without the, , use, , of money, double, , coincidence of wants is an essential feature., , Gi), , In contrast, in an economy where money is in use, money by, of wants., step eliminates the need for double coincidence, , v) Money acts as, , intermediate in the, , an, , exchange process,, , providing the crucial intermediate, , it is called, , a, , medium of exchange., , Modern Forms of Money, , CurrencY, (a), (b), , notes and coins., Modern forms of money include currency-paper, of Ihdia, issues currency notes on behalf of the central, In India, the Reserve Bank, indian law, no other individual or organisation is allowed to issue, As, , per, , government., currency., , (i) Deposits with Banks, in which people, (a) The other form, , people need only, , some, , money is as deposits with banks. At a, hold their, needs., , currency for, , point, , of time, , day-to-day, , Ih) Ranks aCcept the deposits and also pay an amount as interest on the deposits. In this way, is sate with the, , people's money, (c) Since the, , deposits, , the bank, , in, , banks and it earns an, , accounts can be, , amount as, , withdrawn on, , interest, , demand, these deposits, , are, , called demand deposits., , (ii) Cheques, (a) For, , payment, , cheque for, , a, , througn cneque,, specific, , tne, , payer Wno nas an account, , with the, , bank, makes, , out, , a, , amount., , I A cheque is a paper instructing the bank to pay a specihc amount from the person's, , account to the person, L o a n Activities of Banks, , in wnose name the, , cheque has been issued., , )There is an interesting mechanism at work here. Banks keep only a small proportion of their, deposits, , ), , as cash, , Banks use, , with, , major portio., major, portion, , the, , economIc, , for, , various, , themselves., , of the deposits to extend loans. There is a huge demand for loans, , activities.
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in, , positors) and those, , this way, banks mediate between those who have surplus funds (the depositors) ar, , Who are, , in need of these funds, , (the borrowers)., , charge a higher interest rate on loans than what they offer on deposits. Thediffa., Banks, between what is charged from borrowers and what is paid to depositors iss their, e, their main, main, of income., , sourt, , Terms of Credit, 0, , is, land, building, vehicle, liyes, asset that the borrower, (such, Collateral, aeposits with banks) and uses this as a guarantee to a lender until the loan is repaid storck, an, , as, , owns, , i t the borrower fails to repay the loan, the lender has the right, to sell the asset or collatera, eral t,, obtain payment., Property such as land titles, deposits with banks, Iivestock are some comr, , ormrmrr, , examples of collateral used for borrowing., , in) Interest rate, collateral and documentation, requirement, and the, comprise what is called the terms of credt., , v) The terms of credit vary substantially from, , one, , mode of, , repayment togetre, , credit arrangement to another., , depending on the nature of the lender and the borrower., , They may var, , Formal Sector Credit in India, , The, , various, , types of loans, , can, , be, , sector loans., , conveniently grouped, , as formal sector, , loans and, , informa, , i) Among the former are loans from banks and cooperatives. The informal lenders, include, moneylenders, traders, employers, relatives and friends, etc., (1n) The Reserve Bank of India supervises the functioning of formal sources of loans., (iv) The RBI monitors the banks in actually maintaining cash balance. Similarly, the RBI sees, that the banks give loans not just to, profit-making businesses and traders but also to sma, cultivators, small scale industries, to small borrowers etc., , (v)There is no organisation which supervises the credit activities of lenders in the informal, , They can lend at whatever interest rate they choose. There is no one to stop them fromsector, using, unfair means to get their money back., , (vi) Cheap and affordable credit is crucial for the country's development., (vi) it is necessary that banks and cooperatives increase their lending particularly in the rurd, areas, so that the dependence on informal sources of credit reduces., , Self-Help Groups for the Poor, , ), , The idea is to, , organise, , rural poor, in, , pool (collect) their savings., , (i), , A, , typical, , SHG has 15-20, , save regularly., , (ii) Members, , (iv), , members, usually, , belonging, , to one, , neighbourhood,, , who, , me, , take small loans from the, group itself to meet their needs. The, these loans but this is still less than what the, moneylender charges., , can, , harges, , groupar, interest on, After d, two, if the group is regular in savings, it becomes, eligible for availing loan from the oa, Loan is sanctioned in the name, opportunities for the members., , (v), , particular women, into small Self Help Groups (SHGS) a, , Most of the, , important, , group members., , decisions, , of the group and is, meant to create self, , regarding, , The, , the, , savings, , oyment, , emp, , by th, , and loan, , group decides as regards the loans to be, interest to be charged, repayment schedule etc., , activities, , granted, , the, , are, , tamount, am, purpoSE, timely, , (vi) The SHGs help borrowers, loans for, , a, , variety, , the problem of lack of, collateral. They can, of purposes and at a reasonable, interest rate., , . Term, , overcome, , g
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IMPORTANT TERMSs, .Double Coincidence of Wants: When both the parties have to agree to sell and buy each other's, commodities. This is known as the double coincidence of wants., , Medium of Exchange: Money acts as an intermediate in the exchange processes, it is known as, the medium of exchange., , Currency: Modern forms of money include currency - paper notes and coins., Deposits: A sum of money paid into a bank., , Bank: A bank is a financial institution licensed to receive deposits and creates loans., Demand Deposits: People also have the provision to withdraw the money as and when they, require. Since the deposits in the bank accounts can be withdrawn on demand, these deposits, , are known as demand deposits., Cheque: An order to a bank to pay a stated sum from the drawer's account, written on a specially, printed form., Credit: The ability of a customer to obtain goods or services before payment, based on the trust, , that payment will be made in the future., Loan: A thing that is borrowed, especially a sum of money that is expected to be paid back with, , interest, , Borrower: A person or organisation that takes and uses something belonging to someone else, , with the intention of returning it., Collateral:, , Something pledged, , as, , security, , repayment, , for, , of a loan, to be forfeited in the event of, , a default., Asset: An item of property owned by a person, to meet debts and commitments, or legacies., Lender: An, Interest:, , organisation, , or, , or, , regarded, , company,, , as, , having value and, , person that lends money., , Money paid regularly, , repayment of a debt., Informal Sector: Also known, , at a, , as, , particular, , 'grey economy,, , rate tor the use of, , is, , the, , part, , money lent,, , monitored, , recognised, , by, , or, , delaying, , economy that is neither, for in official statistics., , of an, , It is not accounted, any form of government., all, jobs with normal hours and, Formal Sector: Sector which encompasses, income, taxes must be paid., which, sources on, nor, , available, , the, , taxed, , regular wages, and, , are, , as income, , RBI: The Reserve Bank of India is indla s centra Danking and monetary authority. RBI regulates, to, government entities, businesses,, institutions, loans offered by banks and non-banking inancia, or, Tunds, in, the, financial, system for credit., controls the availadity, , and, known as support Broups, or groups of people who provide mutual support, Groups:A Also, Self-Help, to each other., voluntary association prererably from the same socio-economic background, and, , consumers, , promotes, , its members, small savings among, , NCERT QUESTIONS, 1., , Ans., , In, , Another, , his, , problems for the borrower, ght, C, h i s state would, be 'debt-trap'., a person takes credit, it involves, would be, Whene, "deb-trap'. Whenever, for this state, an the loan and ilil is not pact back, then the borrower is forced to give up, , situations with, ternm, , collateral, , taken, , by, , involves hig, , by, , crCate lurther, , riSKS,, , to the, which he/she used a s thhe guarantee, lo, the lender. For, For, example, credit, could create, pro, for, cultivation, create, problems, at, some, time. Basically, crop production, for, , asset, , or, , farmers, , loan is taken, , high, , a, , culuvauOn, , on inputs such as HYV Seeds, tertilizers, pesticides, irrigation, ctc. Mainly, , farmer, , the, at the, larmer at, , beginning, , the season, of, of the, , and it is, , repaid, , after the harvest. But in
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MPORTANT TERMS, both the parties have to agree to sell and buy each others, When, This is known as the double coincidence of wants., , ,Double Coincidence of Wants:, , commodities., .Medium of Exchange: Money acts as an, the medium of exchange., , intermediate in the exchange processes, it is known, , as, , Currency: Modern forms of money include currency paper notes and coins., .Deposits: A sum of money paid, a bank., Bank: A bank is a financial institution licensed to receive deposits and createsloans., -, , ,, , into, , .Demand Deposits:, , require., , also have the provision to, , People, , deposits in the bank, , Since the, , accounts, , can, , money as and when they, be withdrawn on demand, these deposits, , withdraw the, , are known as demand deposits., Cheque: An order to, printed form., , a, , bank to pay, , a, , stated, , Credit: The ability of a customer to obtain, that payment will be made in the future., Loan: A, , thing that, , is borrowed,, , especially, , from the drawer's account, written, , sum, , goods, a sum, , or, , services, , on a, , before payment, based, , of money that is, , expected, , to, , be, , on, , paid, , specialy, the trust, , back with, , interest., , and uses something belonging to someone else, Borrower: A person or organisation that takes, with the intention of returning it., of a loan, to be forfeited in the event of, Collateral:, pledged as security for repayment, , Something, , a default., owned, , by, , a person, , to meet debts and commitments,, , or, , legacies., , Asset: An item of, , property, , organisation or, Money paid regularly, , at, , a, , particular, , rate for the, , repayment of a debt., Informal Sector: Also known as grey economy,, it is, form oft government., nor monitored by any, Formal Sector: Sector which, recognised, , company, regarded, , as, , having, , value and available, , lends money., person that, , Lender: An, , Interest:, , or, , as, , income, , encompasses, which, , an, , the, , part, , ot, , of money, , lent,, , or, , delaying, , the, , economy that is neither taxed,, for in official statistics., , an, , not accounted, , with, normal hours, joDstaxes, must be, , income, , sources on, , is, , use, , and, , regular wages, and, , are, , paid., , of India is, s central banking and tomonetary authority. RBl regulates, RBI: The Reserve Bank, institutions government entities, businesses., loans offered by banks and non-Dankngancal, or r u n d s in the financial system for credit., tne, d, v, a, i, a, o, y, controis, and consumers and, ot people who provide mutual support, BrOups, Self-Help Groups: Also known as Supot Bus,or, the, same sOcio-economic background, prereraby rom, voluntary, to, , India, , each other., , promotes, , associatio, its members, , A, , small savings, , among, , NCERT QUESTIONS, 1., , In situations with high risks, credit might create further problems for the borrower. Explain., for this state would be debt-trap. Whenever a person takes credit, it involves, , Ans., , Anothier te, , on, , the loan and if it is not, , paid back, then the borrower is forced to give up, sset which he'she used as the guarantee, to the lender. For example, credit, his collateras for cultivation could create, problems at some time. Basically, crop production, taken by 1, sts on inputs such as HYV seeds, fertilizers, pesticides,, etc. Mainly, irrigation,, involves, loan, is taken by a farmer at the beginning of the season and it is repaid alter, the harvest., But in
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Some cases, lailure of the crop resulls in impossible loan payment conditions. Then, in, , order to, , Tepay the loan sometimes, they become bound to sell art of ther lands, making their s, , Siluation, larmers, conclude wheth, , worse than before. There are cases in India, where non epayment of loans leads to ar., , Suicides, example. Maharashtra. Thus, it cdepeds on various factors to, , ther a, , credit is useful or no., 2., , How does, money solve the, , problem, , of double coincidence of wants?, , Explain, , with, , of your own., Ans., , Double, , coineidence, , the, , of, , use, , of wants is, , is also known, , moner, , essential feature, where goods, , an, , Barter, , as, , system'. By serving, , ample, , direculy cxchanged with, , are, , as a, , an examn., , medium of, , exchanges, mone, , the need for double coincidence of wants and the ditficulties associated with, the barter, sY'stem. For, example- a farmer no longer has to look for a shoe maker, who will buy his cerealk, and at the same time and sells him shoes. All he has to do is find a, buyer for his cereals. If he, removes, , has, exchanged his cereals for money, he can purchase any goods or services which he needs to. This, because money acts as a medium of, exchange., How do banks mediate between those who have, , Is, , 3., , Banks, , Ans., , keep, deposits, (15%), of, the, major portion, deposits to, small, , as, , cash, , for, , the, , use, , Look, , They, , those who need money. In this, way,, and, those who need money, money, to, , surplus, on top? Can, you explain the statement?, mentioned on top right on a 10 rupee note; 'Reserve, , 10 rupee note. What is written, , at a, , There, , Ans., , money and those who need money?, (to pay the deposits on demand)., , themselves, , extend loans, , banks mediate between those who have, 4., , surplus, , are, , two, , things, , which, , India' and 'Guaranteed, , are, , the, , Bank of, , Government'. Reserve Bank of India issues, by, currency notes on, behalf of the central government of India. The statement explains that the currency is authorised, or guaranteed by the Central Government. That is, Indian law legalises the use of rupee as a, , medium of payment that cannot be refused in settling transactions in India., 5., , do, , Why, , we, , need, , We need to, , Ans., , expand, , to, , expand, , formal, , formal, , sources, , sources, , of credit in India?, , [CBSE Sample Paper 2017, 202, , of credit in India:, , (i) To reduce dependence on informal sources of credit because the latter charge high interest, rates and do not benefit the borrower much., , (iü) The Reserve, , Bank ot India, supervises the, sources of, of, contrast, there is no organisation which supervises the functioning of informal loan, sourec, loans or the credit activities, lenders in the, , functioning, , of, , informal, , formal, , sector., , (i) After taking loans from intormal lenders sometimes, leads the borrowers, , debt t p, , because of the high interest rales., , In, , India,, , the, , rural, , the formal sector sources of credit, , people., , Thus,, , it, , is, , necessary, , to, , are still, the formal, , only, , about, , sources, , half, , of the, , of credit, , to, , total credit ne, , expand, , their ie, , especially in rural arcas, so lhat the dependency on the formal sources of credit are n, , which would benefit the development of the country on a wider scale., 6. What is the basic idea behind the SHGs lor the poor? Explain in your own words., Ans., , SHG's basic, , especially, , ielea, , is, , to, , provide, , iancal resource, , women, into Snall Sel, , ielp roups., , tor tlhe, poor through, "They are also, , organising the ru, responsible lor provia", , loans at a reasonable interest rate wilhoul collateral., , There, , are some main, , 0) It, , organises, , objectiVes ol SIIis,, , the rural poor,, , (ii) It collects savig, , wlich, , especially, , are as, , followed-, , women, into small Self, , ol the nember., , Help Groups., , Saving per member varies fron, collateral, among the, members., , (iii) It provides loans without, (ix) It provides timely loans for various purposes., (t) It, , provides, , loans at reasnabie, , rae ol, , nterest and, , ral poor, , on, , easy, , terms., , 25, , -, , 100, , or, , n, , re
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also, , It, , provides plattorm to discuss, and act, health,, , (vi), , a, , nutrition, domestic, variety of social issues such, violence,, etc., educatuon,, What are the reasons why the, banks might not, be, Ans. The Banks might not be, willing to lend certain willing to lend to certain borrowers?, borrowers due to the, () Banks require proper and, following reasons:, legal, documents and collateral, () The borrowers who have, not, against loans., repaid previous loans, the bankssecurity not, them further., on a, , as, , as, , might, , (i) Those entrepreneurs, who are, not be, wiling to lend money. going, (iv) One of, , the main, expenses. For this, ensure, , 8., , In, , objectives, , of, , return, , invest in a business with, , bank is, , a, , purpose, it has, , fair and stable, , to, , to earn more, , adopt judicious, , to, , the funds., , on, , what ways does the Reserve, Bank of India, , Ans., , The Reserve Bank, , high risks,, after, , the banks, , lend, , might, , functions, , of, , Banks?, , Why, , is this, , OR, , supervises, , the, , examples., of India, supervises, , () The commercial banks, , to, , meeting a number of, policies which, , functioning, , of formal, , sources of, , to, , ensures, , deposits they receive, , of, , have, , loans.", , Support, , [CBSE 2020, 32/2/1], , the functions of banks in various, ways:, RBI holds a part of the cash reserve of the commercial, banks. RBI mainly, banks maintain a minimum cash balance out, the, , ), , willing, , loan and investment, , supervise the, , necessary?, , "The Reserve Bank of India, the statement with, , profits, , be, , submit intormation to RBI, , on, , how much, , to whom, and at what interest rate, etc., , they, , are, , that the, , lending,, , (ii) RBI observes that the Banks are not only providing loans to profitable businesses but also, to traders and small cultivators, small scale industries, small borrowers etc., , Analyse the role of credit for development., Ans., , Credit plays a crucial role in a countrys development. Banks provide a necessary aid for, , improvement by sanctioning loans to the developing industries and trade. It results in, increased, n, production. profits and employment. Nevertheless., caution must be exercised in the case of high, , risks so that losses do not ocur. This advantage ot loans also needs to be manipulated and t, , kept, , under an administrative hold because loans from the intormal sector include high interest rates, that may be more harmful than good. For this reason, it 1s important that the formal sector give, , out more loans so that borrowers are not duped by moneylenders and can ulümately contribute, to national development., , 10., Ans., , Manav needs a loan to set up a small business. On what basis will Manav decide whether to, Discuss., the moneylender?, from the bank o r, It would be Manav's decision to borrow money trom the bank or the noney lender on the basis, , borrow, , of, , terms, , the following, () Depending, , (i) Requirements, (21), , ofcredit:, , the, , on, , s u i t a b l e rate, , availabilily ol, , of repaynient., , Mode, , Depending, , on, , these, , 80, I n India, about, , (a) Why might, , factors, , per cent, , situation, , and, t, , where, , are, , even, , lend, , fail, , of, , or, , to repay, , of, , farmers, , to, , lend, , ll farmers, , A, , documentation, , small, , to, , ., , repayment., , farmers., farmers,, , to small, , lack in, in, , time due, , in time, the loan in, , to small, , a, re, are, , s m a l l larmers, , and, , easier terus of, , course,, , larmers, , ariers., , money, , colialeral, , unwiling, banks be, , ire proper a, , there, , and, , ofl interest, , who need, , farmer, , s, , security, , credit for cultivation., Providing, , providing, n g such ddocumentations, , lo, , and collater.al, Crop failure. Therefore, the banks, would not, , t o cro, , preter
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Ans., , c a n borrow?, (6) What are the other sources from which the small farmers, Apart from bank. the snnall larmers can borrow from l»cal money lenders, agricultural traders,, , big landlords, cooperatives. SHGis, ctc., Ans., , how the terms of credit can be unfavourable for the small farmer., Example - Gopal is a small farmer, who borrowed money from a local moneylender at a high, , (c) Explain, , with, , an, , example, , hit by, grow rice. But the crop was, result. Gopal had to sell a part of his land to repay the loan., , nterest rate ot 3, , per, , cent to, , drought resultung, , in, , failure. As, , a, , credit., , Ans., , (d) Suggest some ways by which small farmers can get cheap, The small farmers can get cheap credit from the different sources, , like -, , Banks, Agricultural, , Cooperatives, and SHGs., , 12., , Fill in the blanks:, , () Majority of the credit needs of the poor households, , are, , met, , from informal, , sources., , of borrowing increase the debt-burden., , (), , High costs, , (i), , Reserve Bank of India issues currency notes on behalf, , of the Central Government., , () Banks charge a higher interest rate on loans than what they offer on deposits., () Collateral is an asset that the borrower owns and uses as a guarantee until the loan is repaid, , to the lender., 13., , Choose the most appropriate answer., () In a SHC, most of the decisions regarding savings and loan activities are taken by, , (a) Bank, Ans., , (b) Members, (ii) Formal, , sources, , (a) banks, Ans., , (e) Non-government organisation, , 6) Members, of credit does, , not, , include, , (6) Cooperatives, , (e) Employers, , (c) Employers, , CASE-BASED QUESTIONS, Read the passage given below and answer the questions:, , Banks keep only a snall proportion of their deposits as cash with themselves. For example. banks, in India these days hold about 15 per cent of their deposits as cash. This is kept as provision to, , pay the deposiuors who might come to withdraw money from the bank om any given day. Since., on any particular day, only somne of its many clepositors come to withdraw cash. the bank is able, to manage with this cash. Banks use the major portion of the deposits to extend loans. There 1s, , a huge demand for loans for various economic activities. Banks nmake use of the deposits to meet, , the loan requirements of the people. In this way, banks nediate between those who have surplus, funds (the depositors) and those who are in need of these linels (the borrowers). Banks charge, a higher interest rate on koans than what they ofler on deposits. The differece between what s, , charged from borrowers and what is paid to clepositors is their main source of income., , ()Why do banks hold some percentage of their deposits as cash with themselves?, (ii) How does the bank use the deposits?, (iii) What does bank do with the major portion of the deposits?, (iv) What is the main source of income for banks?
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Answers:, , (i) This, , is, , kept, , provision to pay, bank on any given day., , the, , as, , the, , depositors, , who, , might, , withdraw money from, , come to, , (ü) Banks make use of the deposits to meet the loan, requirements of the people., (it) It provides loans to the people., (iv) The difference between what is charged as an interest from borrowers, and what, the, , depositors, , is their main, , source, , is, , of income., , paid, , to, , SHORT ANSWER QUESTIONS, "Banks, , 1., , Banks, , Ans., , are, , are, , efficient medium of exchange.", , efficient medium, , ) Demand, , of, , Support the statement with arguments., [CBSE (Delhi) 2017], , exchange:, , share the essential features of money., , deposits, , i) The facility of cheque against demand deposit makes it possible to directly settle payment, without the use of cash., (ii) Demand deposits are accepted widely as a means of payment., 2. How do demand deposits have the essential features of money? Explain., , [CBSE 2020, 32/5/1], Ans. Demand deposits considered as money:, , deposits, , with banks., , ), , People hold, , ), , People deposit it with the banks by opening a bank account in their name., , money, , as, , (in) Banks accept the deposits and also pay an interest rate on the deposits., (iv) In this way people's money is safe with the banks and it earns an interest., (u) Is the facility which lends essential characteristics of money, for payment., (vi) Any bank depositor can get cheque facility, of loan' in 'business'., Illustrate with examples the role, , 3., , [CBSE (Delhi) 2017], , Ans. Role of Loan, ), , Loan is a crucial element in economiC ite and plays a vital and positive role., , ), , Jt helps to increase earnings. A person obtains credit to meet the working capital needs of, production. The credit helps him to meet the ongoing expenses of production, complete, production on time, and therEDy hcrease nis earnings. Credit therefore plays a vital and, , role, , positive, (iui), (iv), , It makes, It, , las, , on, , economically betler off, , person, , the, , helps, , (7), , a, , in this situation., , p0Or, , arnd, , the person, , to, , needy, , at the, , meet lhe, , time, , than before., , of crisis., , ougoing expenses, , ot, , procduction, , and, , complete production, , time., , (ui) In another situation, because ol the rop laiure, loan pushes the person into a debt trap., , (vii) Examples, 4., , Explain, , Ans., , ol Salim, , and, , 1.aksin1, , could be, , given., , terms of credit., the three important, , of, , credit, , collateral,, , are, , required, , in the, , t o m or, , so, , that the borrower knows the, , secturiy, , or, , guarantee,, , IS, , given, , CBSE 2019, 32/5/1), conditions, to, , repaid., i), , If the, , borrower fails, , to, , repay, , the, , collateral to obtain the payment., , loan,, , the ender has all, the, , to take the, loan., the lender until the loan, is, , rights t, , sell the, assets or
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5., , Why does the fornal or informal sector asks lor a collateral? Why do banks or lenders demand, , collateral against loans?, , :BSE 2019, OR, , 1:8S 20)19, 32/5/1|, , Why do lenders ask for collateral while lending ? Explain., Ans., , (, , Everv loan agrecment specilics au interest rate wlich ilhe borrower must pay t, along with the repavnet of the principal., , n, , the leneder, , lu addition. lenders may demand a collateral or an asset that the borrower owns e, , use in, , as a guarantee until he repays the loan., ), , Interest rate. collateral and documentation requirement and the mode of repayment are, the terms ol crediu required lor foral or informal sectors lor loans., , 6., , Why are service conditions of formal sector loans better than informal sector? Explain., , ICBSE 2020, 32/5/11, Ans., , Formal sector are better than informal sector:, , Low interest ratee, i) Transparency, i ) Supervision by the Reserve Bank of India on the functioning of the formal sector., ( ) No use of unfair means for getting the money back., , Any other relevant point to be explained, 7., , Ans., , [CBSE (AT) 2017], , Explain any three loan activities of banks in India., , Loan acivities of Banks in India:, ) Banks use the major portion of the deposits to extend loans., (i) Banks make use of the deposits to meet the loan requirements of the people., (üi) Banks mediate between those who have surplus funds (the depositors) and those who are, , in need of these funds (the borrowers)., (iv) Banks charge a higher interest rate on loans than what it offers on deposits., 8., Ans., , How do farmers get into debt trap?, (i) Farmers usually take crop loans at the beginning of the season and repay the loan atter, harvest., , (ü) Sometimes, the failure of the crop makes loan repayment impossible., , in) So, the farmers have to sell a part of their land to repay the loan. Credit in such a condition, pushes the borrowers into a situation from which recovery is painfiul and they get into the, , debt trap., 9., , Self-help Groups support has brought about a revolutionary change in the rural sector, , CBSE Sample Paper 20171, OR, , "Self Help Groups (SHGs) are the building blocks of organisation of the rural poor." Support, CBSE 2020, 32/4/1|, , the statement with examples., , Ans., , () The idea is to organise rural poor, in particular women, into small Self Help Groups, , (SHGs) and pool their savings. Members can take small loans from the group itself to meet, their needs. The group changes interest on these loans but this is still less than what tne, , moneylender charges., (i) If, , the group is, , regular, , in, , savings,, , it becomes, , eligible for availing loan from the, , bank:, , Loan is sanctioned in the name of the group and is meant to create self - employmet, , opportunities lor the members. The SHG is responsible for repayment of the loan, hence, banks, , get ready, , to, , give, , loans without, , collateral.
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Ans., , The credit activities of the informal sector should be discouraged because:, , 85% ofloans taken by the poor households in the urhan areas are from informal sources., (7) Intormal lenders charge very high interest on their loans., (), , There are no boundaries and restrictions., , ), , Higher cost of borrowing means a lager part ol the carnings of the borrowers is used to, , repay the loan., () In certain cases. the high interest rate for borrowing can mcan that the amount o, , he, , repaid is greater than the income of the borrower, , (7) This could lead to increasing debt and debt trap, therefore the credit activities of the, informal sector should be discouraged., 13., Ans., , Describe the significance of the Reserve Bank of India., , The, , significance of the Reserve, , Bank of India in the Indian, , RBI issues currency notes on, the central, lt supervises the functioning of formal sources, , behalf of, , CBSE 2020, 32/3/1, , economy, , government., , of loans., , (a) The RBI monitors that the banks actually maintain the cash balance., ), , The RBI sees that the banks give loans not just to profit-making businesses and traders but, also to small culüvators, small scale industries, to small borrowers etc., ), , 14., , Periodically, banks have, , to, , submit information, , to, , RBI., , Credit has its own unique role for development". Justify the statement with arguments., , [CBSE (AI) 2016), OR, Ans., , Describe the vital and positive role of credit., "Credit has its own unique role for development", , [CBSE (Delhi) 2016, 2019, 32/3/1], , (i) Credit helps to increase earning and therefore the person is better off than before. For, example, as in (Salim's case), , () Credit helps to earn money as well as capital for the future., (in) Credit helps in the development of infrastructure of the society that leads to the overall, , development., 15., , Ans., , "Credit can play a negative role." Justify the statement with arguments., , [CBSE 2019, 325 1], , Negative role of Credit:, i) During natural calamities credit repayment is painfil to the farmer, , (ü) Small Producers compelled to scll a parts of land for repayment, in) Credit pushes the borrower into deep debt., (iv) The borrower reaches o worst than before, 16., , How is money transferred from one bank account to another bank account? Explain with an, , example., Ans., , ICBSE (F) 2016], , Money Transfer from one bank account to another bauk account:, Ifa person has to makea paynent to his or lier lviend and writes a cheque lor a specitie amount., this means that the person instructs his bank to pay this amount to his friend. His fiiend takes, this cheque and deposit in his account in the bank. This saicd amount is transferred from one, , bank account to another bank account., 17., , Ans., , Explain any three functions of the Reserve Bank of India., , Functions of the RBI of India:, 0) It supervises the functioning of formal sources of loans., , ICBSE 2019, 32/5/11
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(#) RBI monitors, , (ii), , RBI, , the banks in, , that the banks, , sees, , maintaining, , cash balance., , give loans not just for profit, the small cultivators, small scale, making businesses, but also to beneh, industries, to small borrowers cte., (iu) Periodically, banks have to submit, information to the RBI on how much they are, to whom and at what, ena, interest rate, ete., , 18., , Ans., , How, , is the, , concept, , of Self, , Help Groups important, , for poor, , people?, , Give your view point., , |C8SI (F) 2016), , Self Help Group, SHGs, , ), , help, , i) Members, (l) They get, (2), , in, , pooling, , can, , get, , loan, , at, , the, , savings of the members, who are, timely loans for a variety of purposes., reasonable, , a, , rate, , poor peopIc., , of interest., , It helps borrowers to overcome the problem of lack of collateral and documentation., , () It saves them from exploitation of the money lenders., (U) This interest becomes an extra source of income of the members., , 19., , Why do banks and cooperative societies need to lend more? Explain., , [CBSE Sample Paper 2020], Ans., , (i) If banks and cooperatives would lend more, it would lead to higher incomes., (7) In formal sectors, people could borrow cheaply for a variety of needs., ( ) In rural arcas, farmers can grow crops and set up small scale industries to boost their, , income., (iv) Cheap and affordable credit is crucial for the country's development., , (u) To, , save, , and reduce the, , dependence, , on, , informal, , sources, , of, , credit,, , it is, , important, , that the, , formal credit is distributed more equally so that the poor can benefit from the cheaper, , loans., 20., Ans., , have undergone, "Focuses of currency, , (i) Before the, (i) For, (ii), , a, , introducuon ot cOins,, , since the very, , example,, , Thereafter, the, , changes, , variety, , of, , since, , objects, , ages, Indians used, , early, , use of metallnc, , several, , comsgold,, , was, , early, used, , times." Elucidate., , as, , money., , grains and cattle, , as, , money., , silver, copper coins-a phase which continued, , last century., well into the, , iv), , Modern forms, , u M o d e r n currency, , 21., , is, , made, , nOt, , o, , Currency -paper, precious metal, it, , that banks and, , necessary, , Why is it, , incuae, , money, , ol, , co-operatives, , 1s, , notes, , and coins., , without, , increase, , any, , their, , of its own, lending in rural, use, , areas?, , CBSE (Compt.) 20116], , Explain., , OR, three reasons for h e banks and cooperative societies to increase their lending, , Ans., , in, , rural, , areas., , ODeratives ssould, i h o u l d increase, increase their, ther lending in rural areas:, cooperallves, Banks and, Cnarges loW rate of interes., , facilities, , a), , (, (in), , Formal, , sector, , formal, Lack of, , Villagers, , high, , rate, , come, , on, , informal, , sectos, , under, , debt trap., , there is, is aa no, need to expand tormal sectors so that everyone receives these loans,, , there, T h e r e t o r e, , credit in villages., , of interes, , They, , Borrowers, (i), , of, , Sources, , mainiy depend, , charge, , (iv), , ICBSE2019, 32/2/11
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., , Review any three merits and any two demerits of formal sector of credit"' in India., , as., , Merits and Demerits of Formal Sectors of Credit, , |CBSE (F) 20161, , Merits, , () Helps to, (i) Helps in, , meet the, , workiung capital, , ongoing expenses, , of, , neecds ol, , jproluctio., , production., , () Helps in completing production on tine., , (i) Helps, , in, , increasing earnings., , ()Low nterest rates., , 7) Easv, , access, , of loans to, , small cultivators and simall scale, , Demerits, , industries, , )Difficulty in obtaining loans., ), , Collateral issues., , 27) Documentation could be a problematic issue for few., ), 2., , Lack of credibility in rural areas., , Why are poor households still dependent on informal sources of credit?, , OR, "Poor households still depend on informal sources of credit." Support the statement with, , examples., , [CBSE (F) 2016], , ns. Reasons:, ), , Banks are not present everywhere in rural India., , ) Even if they are present, getting a loan from a bank is much more difficult than taking a, loan from informal sources., , am) Bank loans require proper documents and a collateral. Absence of collateral is one of the, major reasons which prevents the poor from getting bank loans., (iv) Informal lenders like moneylenders know the borrower personally and hence, are otten, willing to give a loan without a collateral., , () The borrowers can, if necessary, approach the moneylender even without repaying their, earlier loans., , (zi) However, the moneylenders charge very high rates of interest, keep no records of the, transactions and harass the p0or borrowers., , 3., , Describe the importance of formal sources of credit in the economic development., ICBSE Delhi 2019, 32 1/], , ns., , i) Credit plays a crucial role inacountry's development., () By sanctioning loans to developing industries anl trade, banks provide them with the, necessary aid for inprovement., (i) This leads to increase in the production, prolits and emuployment. However, caution must, be exercised in the case of loans lrom the intormal sector wlich inchude high interest rates, that may be more harmlul than good., , (iv) For this reason, it is important that the formal sector gives out more loans so that borrowers, , are not duped by moneylenders, and can ultimately contribute to national development., (v), , For example- a loan given to an entrepreneur for setting up a business might contrilate to, , employment generation, infirastructure development in the near future.
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0.4. "Credit sometimes pushes the borrower into a situation from which recovery is very painful.", Support the statement with examples., , |CBSE 2020, 32/1/1], , Ans. Credit push the borrowers in a situation lrom which recovery is painlul:, , ), , It happens when the borrower is not able to repay the loan, , () Many a limes caught into the situation of debt-trap, (iun To repay her loan person has to sell a portion of her/his land., a) The situation of tlhe person gets much worse off than before., Any other relevant, Q.5., , point, , What is a cheque? How does it replace currency?, , cheque is a, , paper instructing the bank to pay a specific, the person in whose name the cheque has been drawn., , A, , Ans., , 0) The, , of, , tacility, , cheque against, , payments without the, , makes it, , from the, , possible, , person's account to, , to, , directly, , the payer who has, , with the bank, makes out, , an account, , cheque of a specific amount., The, , 22), , "Bank, , plays, , couple, , a, , development, , of the, , country." Support, , the, , [CBSE2020, 32/1/1, , statement with examples., , Ans., , The, , days., , of, , a, , any payment of cash., , role in the economic, , important, , an, , without, , complete, , ransactuon is, , Q.6., , transferred from one bank account to another in, , 1s, , money, , settle the, , of withdrawal., , through cheque,, , For payment, , (), , use, , deposits, , demand, , amount, , Role of Banks in the economic development of the country:, for various economic activities., , demand for loans, i) There is a huge, the deposits to, (i) Banks make use of, , (iüi), , meet, , the loan, , requirements of the, , surplus, , funds and those who, , those who have, Banks mediate between, , funds., (iv) They charge, , all the, , (vi') Banks promote, (vii) Any, 0.7., , other relevant, , households, The rich, to, , households have, , Ans., , The formal, , ), , pay, , than what, , paid, , he economy, , to, , they, , depositors, , offer, is, , on, , are, , in need of these, , deposits., , their main, , source, , of income., , through loans., , point., are, a, , avaling cneap, , heavy price, , oniy, , credit n e e d s are, , ol t h e, , on loans, , and what is, , sectors of, , sector stull meels, , remaining, (i) The loans from, income, , interest rate, , from borrowers, , They charge, , (u), , higher, , a, , people., , tor, , credit, , from, , borrowing.", , ab0ut halt ot the, , met rom, , formal, , lenders whereas the, , poor, , Comment., , total credit needs of the rural, , people., , informal sources., , informal lenders carty a Very nigh Interest rate and do little to increase the, , borrowers., , it is necessary that banks ancd coopertives increase their lendung particularly in the, e a s , so that the depenlence on inormal sources of credit reduces., rmal sector loans need to expand, l s also necessary thau everyone receives these, wh, , U), , loans., At present,, , (vi'), , depend, Q.8., , Who, , Self, the, Ans., , ), , 0n, , he, t a k e s the, , it, , is, , he, , the riclh households wIG, nOl, , mprlant, imporlant, , Dial, , receiVe, , l o r a l credit, , sources., , d e c I s i o n s ol SHGs and, decisions, , whereas the poor have, , to, , why?, , OR, , Help, , state, Most, , of, , g r o u p, , roups' help, help borrowers to overcome the problem of lack of collateral." Examine, , Groups, , decisions, he nportant decision, the, , important, , members., , regarding, , the, , savings, , ICBSE (Delhi) 2016. 2020, 32/2/11, , and loan activities, , are, , taken, , by the
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(i) The group decides as regards the lans to be granted, charged, repayment sclhedule, ete., , the purpose, amount, interest to be, , i ) lt is the group whiclh is responsible for the repayment of the loan., , ), , In case of detault by any one member, it is followed up seriously by other members in the, Sroup., , ()Because of this teature, banks are willing to lend to the poor women when organised in, , SHGs even though they have no collateral as such., 2.9., , How can the formal sector loans be made beneficial for poor farmers and workers? Suggest, , CBSE (AI) 2016), , any five measures., , Ans., , Formal, , sector, , loans, , can, , be made beneficial for poor, , farmers, , following, , and workers in the, , ways:, , () t is required to create awareness among farmers about formal sector loans., , ), , Process of providing loans should be made easier., , ), , It should be simple, fast and timely., , be based in rural, () More number of Nationalised banks/ cooperative banks should, , () Banks and, , cooperatives, , should increase, , facility of providing loans, , so, , that, , sector., , dependence, , on, , informal sources of credit reduces., (i) The benefits of loans should be extended, , (vü) While formal, , sector, , loans need, , to, , to, , expand,, , Industries., poor farmers and small scale, , it is also necessary that everyone receives these, , loans., , ., , 10., , Ans., , *The, , use, , of money, , spans, , a, , very, , large part of o u r everyday, , examples., Money in everyday life, , life.", , Support the statement with, [CBSE2020, 32/4/1], , (i) Goods are bought and sold with the use of money, (i) Many kinds of services are also exchanged with money., , of wants., (i) Use of money reduce the need of double coincidence, , (r) A person holding money can easily exchange with goods/services., (u), , For, , ex., , A shoe manufacturer, , wants to, , sell shoes and, , buy, , wheat, , so, , he needs, , to, , sell his shoes, , and then only he can buy wheat., , Any other relevant point., , UESTIONS FOR PRACTICE, 1., , Why do lenders ask for collateral while lending?, , 2., , How are cooperatives functioning in the rural areas to solve the problem of eredit?, , 3., , Why a r e service conditions of, Why is it necessary to have a large, , 4., , 5., , sector?, formal sector loans better than intormal, , mainly, , in rural areas?, , Explain., , Who takes the important decisions of SHGs and why?, , 6., , How does Reserve Bank, , 7., , The rich households, , How does, your own., , are, , of India supervise banks?, availing cheap credit, , households, from foral lenders whercas the poor, , Comment., heavy price for borrowing., double coincidence, money solve the problem of, , have to pay, 8., , number of banks, , Explain., , a, , of wants?, , Explain, , with, , an, , example, , of
