Money and credit


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Money and credit

  1. 1. Money and CreditBy- Umer Ahmed & Godwin Devasir
  2. 2. Objective:-To learn about:1-Formal source and Informal source ofcredit.2-Functions of R.B.I3-Diference between formal and informalsource of credit.4-Methods to reduce the dependence oninformal source of credit.
  3. 3. Sources of CreditThere are various sources of credit such as :Moneylenders- 30%Traders- 3%Relatives and Friends- 7%Cooperative societies- 27%Commercial banks- 25%Landlords- 1%And Others - 7%But, it can be conveniently grouped asFormal Sector loans and Informal sectorloans.
  4. 4. CreditCredit (loans) refers to theagreement in which the lendersupplies the borrower withmoney, goods or services inreturn for the promise of futurepayment.
  5. 5. Terms of creditCollateral securityDocuments requiredTerms of the loanMode of repaymentRate of interest
  6. 6. Collateral securityWhen the Lender feels, the securityprovided by the Borrower is not sufficientor it may be difficult to recover the duessmoothly, the Lender may ask foradditional security to be provided by theBorrower himself or other on behalf of theBorrower. In case if any dispute orfailure to discharge the loan by theBorrower, the collateral securities willcome in hand to service and recover theloan/debt.
  7. 7. Importance of credit for farmers in rural areas•Farmers need credit to buy seeds ,fertilizers pesticides , electricity ,equipments , etc .•There is a minimum period of three tofour months between the time when thefarmers buy these input sand when theysell the crop .• Farmers usually take crop loan sat thebeginning of the season and repay theloan after harvest.
  8. 8. Formal source of credit•Commercial Banks , cooperative societies andRegional Rural Banks constitute the formalsector of credit .•The Reserve Bank of India (R.I.B) supervisesthe functioning of formal sources of loans.•They collect low rate of interest. Theyfollow some well defined rules andprocedures
  9. 9. Informal source of credit•The informal lenders include moneylenders, traders, employers, relativesand friends, etc.•Thereis no organization whichsupervises the credit activities oflenders in the informal sector.•They collect high-rate of interest.•Theydo not follow any rules orprocedures.
  10. 10. Credit in Urban areas•Poor takes 85% credit from Informal sourcesand only 18% from banks and other formalsources.•Rich takes more than 90% of loans fromformal sources.•So formal sources mostly serve the richpeople.
  11. 11. WHY ARE THE BANKS NOT ADVANCINGLOANS TO THE POOR PEOPLE? •Poor people do not have anything to offer as collateral security. •Banks are not available in many rural areas. •Banks do not consider the poor people as credit worthy. •Poor and ignorant people find it difficult to produce the needed documents.
  12. 12. Methods to reduce the dependence on informal source of credit•Banksand cooperative societies need tolend more money , should establish theirbranches in rural area to provide loans forpoor people at cheaper rates ,so that thedependence on informal sources of creditreduces in rural areas .•While formal sector loans need to expand,it is also necessary that everyone receivesthese loans.
  13. 13. Quiz1 -------2 -------3 -------4 -------5 -------
  14. 14. Thank You
  15. 15. Question- 1 Informal source does not include:a) Tradersb) Employersc) Relatives and friendsd) Cooperatives
  16. 16. Question- 2 Moneylender is an example of :a) Banksb) Informal source of creditc) Reserve bank of Indiad) Formal source of credit
  17. 17. Question- 3What is the function of R.B.Ia) Supervises the functioning of formal sources of loans.b) supervises the functioning of Informalsources of loans.c) Dealing with world bank.
  18. 18. Question- 4Which households takes most loans fromformal sector institutions?a)Poor households.b)Rich households.
  19. 19. Wrong Back
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