This presentation tells you about the various aspects of money and also the credit i.e,loan business of the banks and the people in the formal and the informal sectors.

2.  What is money?
 Barter System
 Old forms of money
 Modern forms of money
 Currency
 Currency: Medium of exchange
 Deposits with banks
 Demand deposits
 Cheque

3.  Loan activities of banks
 Credit
 Debt trap
 Collateral
 Terms of credit
 Different sectors of credit
arrangement
 Role of Reserve Bank of India
in the formal sectors

4.  Informal sectors
 Sources of credit for rural
households in India in 2003
 Why is it important that the
formal sectors should lend
more?
 Self Help Groups
 Why are the SHGs popular?
 Grameen banks of Bangladesh

5. Money can be defined as anything that is generally
accepted as a means of exchange and at the same time
act as a measure and store of value.
Money acts as an intermediate in the exchange process
and therefore it is called a mediumof exchange.

6. The main function of money in the economic
system is to facilitate the exchange of goods and
services.

7. In a barter system, commodities are exchanged with
commodities without the use of money.
But both parties have to agree to sell and buy each
other’s commodities.
This is called double coincidence of wants.
Money eliminates the need of double coincidence of
wants.

11. Modern forms of money includes- paper notes and
coins.
It is not made of precious metals as gold, silver, copper
coins.

12. 1. The currency is authorised by the government of India.
2. The Reserve Bank of India (RBI) issues currency on
behalf of the central government.
3. As per Indian Law, no other individual or
organisation is allowed to issue currency.

13. 4. A law legalises the use of rupee (₹) as a medium of
payment that cannot be refused in settling the
transactions in India.
5. No individual in India can legally refuse a payment
made in rupees (₹).

14. People deposit money which they do not need at a
point of time by opening a bank account in their
name.
Banks accept the deposits and also pay an amount of
interest on the deposits.

15. Since the deposits in the bank accounts can be
withdrawn on demand, these deposits are called
demand deposits.

16. Cheque is paper instructing the bank to pay a specific
amount from the person’s account to the person’s
account in whose name the cheque has been issued.
The facility of cheques against demand deposits makes
it possible to directly settle the payments without the
use of cash.

17.  Banks keep only a small proportion of their deposits with
themselves, as a provision to pay the depositors who might
come to withdraw from the bank on any given days.
 Banks use a major portion of the deposits to extend
loan(credit).
 Banks mediate between those people who have surplus
funds(depositors) and those people who are in the need of
those funds(borrowers).

18. Banks charge a higher rate of interest on the loan than
what they offer on deposits.
The difference between what is charged from
borrowers and what is paid to the depositors is their
main source of income.

19. Credit (loan) refers to an agreement in which the
lender supplies the borrower with money, goods or
services in return for the promise of future payment.
In some situations credit plays an important and a
vital role but in some situations it makes the situation
of the borrower worst than before (debt trap).

20. At times repayment of the loan becomes difficult and
credit instead of improving the earnings, pushes the
borrower into a situation from which recovery is very
difficult and painful. This situation is called debt-
trap.

21. Collateral is an asset that the borrower own ( such as
land, building, vehicle, live stocks, deposits with
banks) and uses this as a guarantee to a lender until
the loan is repaid.
If the borrower fails to pay the loan, the lender has the
right to sell the asset or collateral to obtain payments.
Property such as land titles, deposits with banks, live
stocks are some common examples of collateral.

22. Interest Rate
Collateral
Documentation
Mode of Repayment
The terms of credit vary substantially from one credit
arrangement to another.

23. • Banks
• CooperativesFORMAL
• Money lenders
• Traders
• Relatives and friends
INFORMAL

24. Reserve Bank of India supervises the functioning of
the formal .
It monitors the banks in actually maintaining cash
balance.
RBI sees that banks gives loans not only to the profit
making businesses and traders but also to small
cultivators, small scale industries, small borrowers etc.

25.  Banks have to submit information to the RBI periodically on
how much they are lending, to whom, at what interest rate
etc. The RBI

26. There is no organisation which supervises the credit
activities of lenders in the informal sector.
They can lend at whatever rate they choose.
There is no one to stop them from using unfair means
to get their money back.
Thus, the cost to the borrowing of informal loans is
much higher.

27. Moneylenders
Traders
Relatives and Friends
Others
Cooperative Societies
Commercial Banks
landlords

28. The informal sector charges a very high interest rate,
which the poor people are not able to pay back, and
they get trapped in the debt trap.
Hence, the banks and cooperatives need to lend more.
This would need to higher incomes and many people
could then borrow cheaply for a variety of needs.
Cheap and affordable credit is crucial for the country’s
development.

29. Poor Households
Per cent of loans from the
FOMAL sector (15%)
Per cent of loans from the
INFOMAL sector( 85%)

30. Households withfew assets
Per cent of loans from the
FORMAL sector
Per cent of loans from the
INFORMAL sector

31. Well-off households
Per cent of loans from
the FORMAL sector
Per cent of loans from
the INFORMAL sector

32. Rich Households
Per cent of loans from the
FORMAL sector
Per cent of loans from the
INFORMAL sector

33. The formal sector still meets only about half of the
total credit needs of the rural people.
Most loans from the informal lenders carry a very
high interest rate and do little to increase the income
of the borrowers.

34. Thus the banks and the cooperatives need to lend
more particularly in the rural areas, so that the
dependence on the informal sector reduces.
While formal sector loans need to expand, it also
necessary that everyone receives the loans.

35.  Self- Help Groups consists of certain members who
pool their savings and constitute a fund which is
further used in making finance and advances to other
members.
A typical SGH has 15- 20 members.
The members pool their savings and after some time,
it becomes a large amount which is used to give loans
to the needy ones at a very normal rate of interest.

36.  This helps to reduce the functioning of informal
sectors of credit.
After a year or so, if such group is regular in its
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-employment opportunities for the
members .

37.  Loans are provided for releasing mortgaged land, for
meeting working capital needs as buying seeds,
fertilisers, raw materials, for acquiring assets like
sewing machines, handlooms, cattle etc.
Important decisions regarding the savings and loan
activities are taken by the group members.
The group decides the purpose, amount, interest to be
charged, repayment of the loan etc.

38. Non- repayment of the loan is taken seriously.
Because of this feature the banks are willing to lend
loan especially to the poor women when organised in
SHGs.

39. The Self Help Groups are becoming popular for th
following reasons:
They help the borrowers overcome the problem of lack
of collateral.
They can get timely loans for variety of purposes and
at a reasonable interest rate.
They are the building blocks of the organisation of the
rural poor.

40. It helps women to become self reliant.
The regular meetings of the group provide a platform
to discuss and act on various social issues such as
health, nutrition, domestic violence, etc.

41. The Grameen Banks were startedin the 1970s as a
small project by Professor MuhammadYunus
(recipient of the 2006 Nobel Prize for Peace).
Grameen Bank now has over 6 million borrowers in
about 40,000 villages spread across Bangladesh.
Almost all the borrowers are women and belong to
poorest sections of the society.

42. These borrowers have proved that the poor women can
start and run a variety of small income generating
activities successfully.
Professor Md. Yunus

43. MADE BY:
K.MOHSINA
KAUSER
CLASS: X-B