WHY TRANSACTIONS ARE MADE IN MONEY?

I DON’T NEED CLOTHES. I NEED SHOES.

I WANT CLOTHES.BUT I DON’T HAVE WHEAT.

I’LL GIVE YOU CLOTHES FOR YOUR WHEAT.

The Barter System

WHY IS IT ACCEPTED AS(MONEY) A MEDIUM OF EXCHANGE?

Money acts as an intermediate in the exchange process. It is called medium of exchange.

Money as a

Means of

Payment.

MODERN FORMS OF MONEY ARE LINKED TO THE BANKING SYSTEM.

TRANSACTIONS ARE MADE IN MONEY DUE TO :---- Money can exchange easily any commodity/service. Everyone prefers to receive payments in money To eliminates the need for double coincidence of wants.

MONEY SUPPLY IN INDIA

M1= Currency held by public+Demand deposits with Bank+Other deposits

with RBI

Modern forms of money include

Currency---Paper notes and coins. Deposits with Banks.

Money eliminates problems of the Barter System.

BORROWERS

People takeloans

People repayloans withinterest

DEPOSITORS

People makedeposits

People makewithdrawals andget interest

Banks mediate between the Depositors and the Borrowers.

NEED FOR CREDIT

ON THE BASIS OF TIME

ON THE BASIS OF PURPOSE

• SHORT TERM CREDIT

• MID TERM CREDIT

• LONG TERM CREDIT

NEED FOR CREDIT

BASIS OF TIME SHORT TERM:LESS

THAN 15 MONTHS MID TERM:15 MONTH

TO 5 YEARS LONG TERM:MORE

THAN 5 YEARS

BASIS OF PURPOSE PRODUCTIVE LOANS

PURCHASE OF SEEDS FERTILISERS,IMPROVEMENT IN TECHNOLOGY

UNPRODUCTIVE LOANS:SOCIAL RELIGIOU CEREMONIES,SETTLING OF OLD LOANS

SOURCES OF CREDIT

FORMAL SOURCES

COMMERCIAL BANKSCOOPERATIVES

INFORMAL SOURCES

MONEY LENDERTRADERSEMPLOYERSRELATIVES &

FRIENDS LANDLORDS

OTHERS

FORMAL SOURCES

• COMMERCIAL BANKS

• LAND DEVELOPMENT BANK

• REGIONAL RURAL BANKS

• THE GOVERNMENT

• NABARD

• SHGs

TERMS OF CREDIT

Interest rate, Collateral and documentation

requirement, and mode of

repayment

CREDIT(LOAN)ACTIVITIES OF BANKSWhether Credit would be useful or not?

Depends on the Risk in the situation.

1.Festival Season 2.Credit is for Crop Production

Credit plays a vital and positive role if made a good profit.

If crop failure, creditpushes the person intoa debt trap.

SOURCES OF CREDITfor Rural Households in India

30%

Moneylenders

25%CommercialBanks

27%

CooperativeSocieties

Landlords

3%

7%

7%

1%

Traders Relatives and Friends

Others

Why are Poor Households stilldependent on Informal Sources of

credit.? Banks are not present everywhere in rural

India. Loan from a bank is much more difficult than

taking a loan from informal sources. Bank loans require proper documents and

collateral. Informal lenders know the borrowers

personally and give a loan without collateral.

Newer Ways of Providing Loans to the PoorSELF HELO\P GROUPS

A women’s self-help group meeting in Gujarat.

1.Banks are willing to lend to the poor women when organized in SHGs, even though theyhave no collateral as such.

2.The poor should get a much greater share of formal loans from banks, cooperative societies etc. Both these steps are important for development.

THANKS BY

J K DOGRAPGT ECO

KV NO-3,DELHI CANTT.