Class 10 Social Science Notes — Chapter 19: Money and Credit
Role of money, formal vs informal credit, and SHGs.
Detailed NCERT notes
- Barter system suffered from 'double coincidence of wants' — money solved this by acting as a medium of exchange.
- Money forms: currency (issued by RBI in India), demand deposits (bank accounts, use cheques/debit cards), digital money (UPI, wallets).
- Modern forms of money = accepted because state (RBI) authorises them — 'fiat money'.
- Banks: accept deposits (paying interest), lend loans (charging higher interest), difference = profit spread. Cash reserve requirement leaves banks with fraction to lend — 'credit creation'.
- Terms of credit: interest rate, collateral (asset pledged as security), documentation, mode of repayment.
- Formal sources: banks, cooperatives — regulated by RBI; interest rates lower; often need collateral and paperwork; safer.
- Informal sources: moneylenders, traders, employers, relatives — unregulated; can charge exorbitant rates; may exploit; still preferred by poor because of ease.
- Poor households often borrow from informal sources due to lack of collateral and documentation — leading to debt traps.
- Formal credit reach in India remains uneven: rural and poor households have less access.
- Self-Help Groups (SHGs): 15–20 women pool small savings; group takes loans from banks after building trust; borrowers can access loans without collateral; group pressure ensures repayment.
- SHGs empower women, reduce dependence on moneylenders, and support micro-enterprises.
- Recent developments (contextual): Jan Dhan Yojana, mobile banking, UPI — expanded formal financial access.
Formulas & key results
Mind map
- Barter → money → forms of modern money
- Banks: deposits + loans (credit creation)
- Formal vs informal credit
- SHGs → collateral-free micro-credit
Tricks & shortcuts
- Formal credit → regulated by RBI; informal → not.
- SHGs solve the collateral problem.
Common mistakes to avoid
- Confusing collateral with interest rate.
- Assuming all informal credit is exploitative — some serves genuine needs, though at higher cost.
Competency-based questions & answers
- Q. Why do the poor rely on informal credit?A. They lack collateral, documentation, or bank access; informal lenders are quick and flexible, though costly — SHGs and Jan Dhan aim to bridge this gap.
- Q. How do SHGs help rural women?A. Provide access to bank credit without collateral, encourage saving, support small businesses, build social capital and reduce dependence on moneylenders.