there are both summary of lesson and questions how you get useful..

2. Double circulation of wants:
• Before the introductionof money people used barter system of exchange.
when a person manufacturing shoes need wheat ,he would have to find the
person growing wheat and needs shoes. But this is so difficult to find the
person growing wheat and needs shoes.
• a situation where the supplier of goods A wantsgoods B and the supplier
of goods B wantsgoods A. this is known as double circulation of wants.
• Even though it paved a way for exchange of goods it’s the major drawback
of bartersystem.

3.  As it is difficult to find a person who can fulfill the double
circulation system. This restricted the exchange of goods.
 But if money comes in use the shoe manufacturer would have sold
his goods in the market and from that money he could buy
commodities in market.
 A person holding money can easily exchange it for any commodity
or service that he or she wants. Thus ,everyone likes to paid in the
form of money. since here money acts as a intermediate in exchange
process, it is called medium of exchange

4.  Modern forms of money include currency [paper notes] and coins.
Before the introduction of money, [ie] in ancient times grains and
cattle were used as medium of exchange. As it became difficult
metallic coins came into use.

5.  Metallic coins made up of precious metal was difficult to find. This
was the reason behind birth of money.
 Even people accepted it as it was authorized by government of India.
In India, the reserve bank of India [RBI] issues the currency notes.
On the currency note you can observe the statement promising a
particular amount to be paid to the bearer of the currency note.

6.  No individual in India can refuse the payment made in rupees.
 Hence the rupee is accepted as a medium of exchange.
 Thus ,the double circulation of wants was removed and smoothened
exchange, facilitating activities.

7.  Now the people have money. But they only need little money for their
day to day needs. So they started to deposit their extra money in
bank.
 Bank accepted their deposit and also pay an interest on the money.
In this way peoples money became safe and also earned an interest.
 People also have the provision to withdraw the money as when they
require. Since their deposits in bank can be withdrawn on demand,
these deposits are called demand deposits.

8.  The facility of cheque makes it easier for transaction of money
without using money.
 For payment through cheque, the payer who has an account in bank,
makes out a cheque for a specific amount.
 A cheque is basically a paper instructing the bank to pay a specific
amount from the person's amount to the person in whose name the
cheque has been issued.

9.  Banks now a days keep 15% of the deposits as cash.
 This is kept as provision to pay the depositors who might come to
withdraw, the remaining 85% is used to extend loan for borrowers
for various economic activities.
 Thus banks make use of deposits to meet the loan requirements.
 In this way bank mediate between those who have surplus funds[the
depositors] and those who are in need[the borrowers]

10.  Banks charge a higher interest rate in loans than they offer on
deposits.
 The difference between what is charged from borrowers and what is
paid to depositors is their main source of income.

11.  Credit refers to an agreement in which the lender supplies the
borrower with money goods or services in return for the promise of
future payment.
 During a festival season:
As we know already during festival season people buy many things.
for that manufacturers order a lot of things from traders. To
complete production on time they ask the raw materials suppliers to

12.  give it on credit and they promise to pay them later. Even he obtains
a loan from the trader as advance payment and promise them goods
will be supplied on time. Later, when the manufacturing gets over
and when he receives the amount he pays it to the raw material
supplier.
 Thus here credit plays a vital and positive role in this situation. Even
now the supplier is better than that of before.

13. Example:[case of salim]
• Salim is a shoe manufacturer and the festive season is two months
from now. So he has got a huge order of making 3000 pairs of shoes
and has to supply it within a month. For doing that he has to hire
new workers for switching and pasting. To meet all this demands he
has to take loan from two sources:
first: he get the raw materials as loan from the leather supplier for
making shoes and pays him later.

14. second: he gets a advance payment from the trader and promises him
to deliver the goods by the month end. Now he gets the money and
pays the money back.
* farmers problem:
small farmers take loans from moneylenders to meet their expenses
of cultivation, hoping that he could par it back with the help of
crops. But in some cases even though he sprays the insecticides the
plant is hit by pest. Thus the crop fails.

15. this situation makes the farmers that he cant pay the loan amount.
Next year, he again takes a fresh loan hoping that this will be
success. Even though this crop this success he cant pay the amount
that fulfills the old loan. Thus farmer is caught in dept trap.
dept trap: situation where the borrowers of money cant pay the money
due to higher interest favoring the lenders. This again makes the
borrower into next loan this cycle goes on but the victim cant pay the
money and they have to pay the interest till they die.

16. now for paying the amount or interest amount the farmer maybe
selling a part of land.
here it creates a negative impact on the society.
people are more worse than before.
* here in first case its good but in second case its bad. Whether credit is
useful or not it depends upon the risk in the situation and should
have some support in case of loss.

17. In everyday life we see our relative or friends getting loans. Even we
see the problems in it.
That is for safety the lender ask for collateral [security against loan].
Even they sign an agreement in which it would be written that
money should be returned with the interest amount. The bank use
this as a guarantee until the loan is repaid.
If the money is not repaid then the lender has the rights to sell the
collateral to obtain payment.

18. Terms of credit:
*interest rate
*collateral
*documentation requirement
*the mode of repayment.
.The terms of credit will vary from lenders and borrowers.

19.  House loan:
For getting house loan from the bank to purchase a house, borrowers
have to submit the documents showing their employment and salary
before giving loans.
the bank retains the ownership of the new house till the money gets
paid and the papers will be returned after the payment of entire loan
with interest.

20. In rural areas they get loans from
*the moneylender:
The small money lenders will borrow from the moneylenders at 5%
interest per month. Due the high interest they cant pay and fell into
dept trap.
*loan from traders:
now farmers get loans from traders at low rate interest. At the
beginning the trader supplies the farm inputs on credit. This credit
is paid after the harvest is over. This way he ensures he that he gets

21. the money besides making profit. He also buys a crop from farmer at
less rate as it is season and sell it for high rates later.
*loans from banks:
medium and small farmers take bank loan for cultivation at very low
interest rate and easy repayment terms. Even they provide other
facilities to such borrowers.
example: if a farmer cultivates potato and after harvest if he wants to
store the surplus in a cold storage. The bank provides this facility to
such borrowers.

22. *loan from employer:
The landless agricultural laborers , who don’t have any work meet their
daily expenses through credit. They get their credit through their
employer. The landowners may charge an extra interest upto 5% per
month. They work over their till their loan gets fulfilled. Even though
the landowner didn’t treat them well they have to work their.
*loan from cooperatives:
besides bank, the other major source of cheap credits

23. in rural areas are the cooperative society. Cooperatives can be established
for farming, weavings, etc. A typical example is farmers cooperatives
which has thousands of farmers as members. It uses deposits from
banks as collateral for getting a large loan from bank. This loan fund
is used to provide loans to its members. These loans can be repeated
when the original loans are repaid. Loans to members can be
provided for the purchase of agricultural implements.
Example: krishak cooperative.

24. The two categories of sources of credit
*formal sector credit or loans
*informal sector credit or loans
the informal sector may consist of moneylenders, friends, and
relatives, traders, landowners, etc.

25. *it provides loans comparatively at low rate.
The sector is mainly supervised by RBI, it include
banks and cooperatives and collateral is required to
obtain loan.
*the RBI ensures that the bank give loan not just for
making profit making business and traders, but
also to small cultivators.
*periodically banks have to submit information to the
RBI on much they lend, to whom, at what interest
rate, etc.

26. *the RBI monitors the banks in actually maintaining cash balance.
*however ,there is no organization which supervises the credit activities
of lenders in the formal sector. Most of the informal lenders charge
much higher rate of interest as compared to formal sector of credit.
*Thus, the cost of borrower of informal sector loans is much higher.

27. *this sector charges higher interest on its loan , there is no organization
to supervise this sector and collateral is not required to obtain loan.
*this could lead to increasing debt with the borrower falling into debt
trap.
*people who wish to start an enterprise by borrowing from the informal
sector may to do so because of high cost of borrowing.
*cheap and crucial credit is necessary for country’s development.

28. *people are divided on the basis: rich, poor, medium with less asserts
and medium with more asserts.
*85% of the poor people take loans from informal sector in the urban
areas.
*but the rich people in urban areas take loans from formal sector.
Question: after reading these many slides don’t you think that why poor
people are getting from informal and rich from formal?

29. As we know that formal needs collateral for getting loans while informal
doesn’t. this is the main reason why the poor gets from informal
sector.
Even the informal sector has no one to supervise it, it can charge high
interest which pushes the people into dept-trap.
It can be reduced only if the banks give loans to poor people, so that they
can be benefited from it.

30. *as we know that banks are not present everyone in India, it becomes
another problem even though the loans are extended .
*absence of collateral is the main reason for poor not getting from
banks.
*now a days people found new ways to solve that, that is through self
help groups [SHGs] for self employment and sharing the funds
among the members of its groups.
*there are 15-20 members in it, usually belonging to neighborhood, who
meet regularly.

31. *the saving amount varies from person to person based on their ability
and situation.
*members can take loan from the group to meet their needs. The group
charges less interest.
*this is similar to cooperatives: [ie], they keep their savings as collateral
and take a large loan from bank and share it.
*this even creates self employment and even the major decisions are
taken by the group members itself.
*Gujarat, Karnataka, Andhra Pradesh have started women’s self help
groups.

32. *it is the group responsible for repayment as the loan ia taken in the
name of the group.
*any case of non-repayment of any one member this favors the other
also.
*because of this banks are willing to lend to the poor women when they
are organized, as self help groups, even though they don’t have
collateral.
*SHGs are the building blocks of organization of the poor. Even it
enables women to be self employed, even it acts as a problem where
women discuss about various things such as health, violence, etc.

33. *this is one of the success stories to reach poor to meet their credit needs
at reasonable rates.
*professor Yunus ,the founder of grameen bank and recipient of 2006
noble price for peace, started this at 1970s.
*he made sure that poor got the credit on reasonable terms and
condition.
*it has nearly 8.63 million borrowers in about 81,390 villages in oct 2014.
*now the women can start own business which they can generate income.

34. *economic activities need loans or credit. Credits have both positive and
negative impact on the borrower.
*at present, the rich people get credit from formal sector.
But poor people get credit from informal sector
*it is essential credit increases so that the dependence on the more
expensive informal credit becomes less.

35. 1.how does money makes easier for exchange?
2.Write a short note on problems of double coincidence of wants?
3.Explain the credit situations.
4.What are the terms of credit?
5.Differentiate between formal sector and informal sector credit?
6.Is collateral necessary for money lender, trader. why?
7.Give one example of cooperative society.

36. 8.What is the need for expansion of the formal sector loan?
9.How many members are there in self help groups?
10.Short note on grameen bank?
11.Who takes the important decisions in the self help groups?
12.Why demand deposits are considered as money?
13.Compare the terms of credit for small farmer, medium farmer and large
farmer?
14.Can everyone get credit at cheap rate? If no, then who can get it?

37. 15.How does banks mediate between those who have surplus money and
those who need money?
16.Look at a 10 rupee note. What is written on top? Can you explain this
statement?
17.In what way does the reserve bank of India supervise the functioning
of banks? why is this necessary?
18.What are the two main reasons for formal credit not being available to
the poor? Why is there need to expand rural credit?
19.Credit is useful as well as harmful , explain this with example?

38. Thank you!!!!
You can answer this
questions if you read these
slides well.