BARTER SYSTEM
The exchange of goods, property for other goods without using money is known as the Barter System.
DOUBLE COINCIDENCE OF WANTS
When both parties agree to sell and buy each other commodities, it is known as double coincidence of wants.
MEDIUM OF EXCHANGE
Money acts as an intermediate in the exchange process so it is called a medium of exchange.
WHY MONEY IS ACCEPTED AS MEDIUM OF EXCHANGE.
Because the currency is authorized by the government of the country. No one can deny that.
Only RBI has the authority to print currency in India.
MODERN FORMS OF CURRENCY
It includes paper notes and coins.
DEMAND DEPOSITS
We can open an account with the bank.
We can withdraw the money from our account as and when we demand.
So our bank account is also called a demand deposit.
We get an interest rate on the amount of money we keep with the bank.
Against demand deposit we get the facilities of cheque.
CHEQUE
Cheque is the paper instructing a Bank to pay a specific amount from the person's account to the person in whose name the cheque has been issued.
** So demand deposits make it possible to directly settle payments without the use of cash. So demand deposits are accepted widely as a means of payment, along with the currency.
LOAN ACTIVITIES OF BANKS
Banks hold only 15% of their deposits as cash. This is kept as provision to pay the depositor who might come to withdraw money from the bank on any given day.
Banks use the major portion of the deposits to extend loans. There is a huge demand for loans for various activities.
Banks give a lesser rate of interest to the depositor and charge a higher rate of interest from the loan taker (borrower).
The difference between what is charged from the borrower and what is paid to the depositor becomes the main source of income of the bank.
Two different credit situations
A large number of transactions involve credit in some form or the other.
People take loans for various activities. But taking a loan from the banks ,money lender or from elsewhere will not always bring profit or happiness.
Sometimes taking loans from banks or moneylenders might bring profit for the person. As I have explained in the video by giving the example of Salim.
But sometimes when we take a loan it might bring loss for the person. For example it was Swapna who was a small farmer and when the standing crop was hit by the pests, she could not repeat the loan and had to sell a piece of land.
Terms of credit
Documentation, interest rate, mode of repayment and collateral together
comprise of terms of credit.
Collateral
Collateral is an asset that the borrower owns such as Land, building, vehicle, livestock and deposits with banks and uses this as a guarantee to a lender until the loan is repaid.
This collateral is demanded by the lender because If the borrower fails to repay the loan the lender has the right to sell the asset or the collateral to obtain payment.
The two different sources of credit
The various types of loans can be grouped as formal sector loans and informal sector loans.
Formal sector loans are supervised by the government.
Banks and cooperatives come under it. They charge a fixed rate of interest. They demand collateral. Proper documentation. No cheating takes place.
Whereas in informal sector loans they are not supervised by any organisation.
Examples are moneylenders, landlords, relatives and friends, traders and others.
There is no one to stop unfair means. Interest rates are very high.
RESERVE BANK OF INDIA
Functions
¶ It supervises the functioning of the banks.
¶ It monitors the banks in maintaining the cash balance.
¶ It also checks that the banks do not give money only for profit making
business and traders but also to small cultivators, small scale industries
and to small borrowers.
HIGHER COST OF BORROWING
✓It means a larger part of the earnings of the borrower is used to repay the
loan.
✓The high interest rate for borrowing means that the amount to be repaid
is greater than the income of a borrower .
✓This could lead to increasing DEBT and DEBT TRAP.
✓People who wish to start their own business by borrowing ,are not able
to do so because of the high cost of borrowing.
For these reasons ,banks and cooperative societies need to lend more.
✓This would lead to higher income and more people could then borrow
cheaply for a variety of needs.
✓They could grow crops, do business, set up small scale industries or trade in goods.
Therefore, CHEAP AND AFFORDABLE CREDIT IS CRUCIAL FOR THE
COUNTRY'S DEVELOPMENT.
#We can see that 85% of the loans taken by poor households in the urban areas are from informal sources.
#90% off the loans of rich people are from formal sources and only 10% are from informal sources.
#The rich households are availing cheap credit from formal lenders whereas the poor households have to pay a large amount for borrowing.
INFERENCE DRAWN FROM THESE OBSERVATIONS ARE:--
1. The formal sector still meets only about half of the total credit needs
of the rural people.
2. The remaining credit needs are made from informal sector
THUS,
A. It is necessary that banks and cooperatives increase their lending
particularly in the rural areas so that the dependence on informal
sources of credit are reduced.
B. While formal sector loans need to expand it is also necessary that
Everyone receives these loans.
SELF HELP GROUPS (SHG)
In recent years people have tried new ways of providing loans to the poor.
Idea is to organise rural poor specially women into small self help groups and pool (collect) their savings.
A typical SHG has 15 to 20 members.
They meet and save regularly.
Savings varies from Rs 25 to Rs100 or more.
Its members can take small loans from the group itself , to meet their needs.
Small loans provided to the members for releasing mortgage land ,for meeting working capital needs (for buying seeds fertiliser raw materials etc.,)
The group charges interest on these loans, but this is less than what the money lender charges.
After a year or two, if the group is regular in savings, it becomes eligible for availing the loan from the bank.
MOST OF THE IMPORTANT DECISIONS REGARDING THE SAVINGS AND LOAN ACTIVITIES TAKEN BY THE SHG GROUP MEMBERS-
The group decides whether the loan should be granted or not.
It is the group which is responsible for the repayment of the loan.
For any case of non payment of loans by any- one member , he is followed seriously by other members in the group.
Because of this feature banks are also willing to lend to the poor women, when organised in SHG, even when they have no collateral.
Therefore the SHGs help the borrowers to overcome the problem of lack of collateral. It not only helps women to become financially self-reliant, but also provides a platform to discuss and act on a variety of social issues such as health, nutrition, domestic violence etc.
GRAMEEN BANK OF BANGLADESH
∆ It is one of the biggest success stories in reaching the poor to meet that credit needs at reasonable rates.
∆ it was started in 1970 as a small project.
∆ it now has over 6 million borrowers in about 40000 villages spread across Bangladesh.
∆ these borrowers have proved that poor women are not only reliable borrowers but they can start and run a variety of small income generating activities successfully.
No comments:
Post a Comment