Money and Credit Class 10 Made Easy: Your Ultimate Notes Guide – CBSE Guidance
Welcome to your ultimate guide to understanding “Money and Credit” in Class 10 Economics, Chapter 3 of the Social Science syllabus. As the CBSE Class 10 board exams for the academic year 2023-24 approach, grasping the concepts of money and credit becomes increasingly crucial.
Designed specifically for Class 10 students, these meticulously crafted notes will unravel the mysteries of money and credit, equipping you with a thorough understanding of these fundamental economic concepts. Whether you’re aiming for academic excellence or simply seeking clarity, this guide is your one-stop solution.
With these notes in hand, you’ll confidently tackle any challenge that arises in your Money and Credit lessons, from mastering the barter system to comprehending credit creation. Prepare to ace your quizzes, assignments, and the upcoming CBSE Class 10 2023-24 board exams with ease.
| Subject | Social Science (Economics) |
| Class | 10 |
| Board | CBSE and State Boards |
| Chapter No. | 3 |
| Chapter Name | Money and Credit |
| Type | Notes |
| Session | 2023-24 |
| Weightage | 3-4 marks |
“Don’t be afraid to fail. Not failure, but low aim, is the greatest crime.”
— Vince Lombardi
Money and Credit Class 10 Notes
Money as a Medium of Exchange
Barter system: It is a system in which goods, property, services, etc. are exchanged for other goods without the use of money.
Limitations of the Barter system:
- Both parties have to agree to buy and sell each other’s commodities.
- Valuation of all goods cannot be done easily.
- There are certain products that cannot be divided.
Double Coincidence of Wants: The condition when both parties in a barter economy agree to sell and buy each other’s commodities is known as a double coincidence of wants.
Money
- It is a medium of exchange that is widely accepted in transactions for goods and services. It can take many forms, such as currency, coins, bank deposits, and digital currency.
- Money acts as an intermediate in the exchange process and thus eliminates the need for a double coincidence of wants.
- Since money acts as an intermediate in the exchange process, it is called a medium of exchange.
Modern Forms of Money
Currency
Two forms of modern currency are
Modern currency is accepted as a medium of exchange because:
- Modern currency is authorized by the government of the country.
- The law legalizes the use of rupees in India as a medium of payment and it cannot be refused in doing transactions in India.
- In India, the Reserve Bank of India issues currency notes on behalf of the government.
Deposits with Banks
Demand deposits: The deposits in the bank accounts, which can be withdrawn on demand, are called demand deposits.
Cheque: A cheque is a paper instructing the bank to pay a specific amount from a person’s account to the person in whose name the cheque has been issued.
The benefits of deposits with the banks are:
- This ensures the safety of money and they also earn interest from the bank.
- Demand deposits can be withdrawn whenever the person wants. It also allows payments to be made through cheque.
- Through cheques, the money gets directly transferred between banks. So, no direct payment of cash needs to be made.
- Banks extend loans from the deposits they receive so they mediate between people having surplus funds and people in need of more funds through these deposits.
- Since bank deposits are also white money, the nation’s economy is more transparent.
Loan Activities of Banks
- People have extra cash with them. Those having extra cash open a bank account in their name and deposit the surplus money there.
- Out of the total money deposited with the banks, 15% of it is kept as a minimum cash balance to pay to the depositors who might come to withdraw money from the bank on any given day.
- Banks use a major portion of deposits to extend loans.
- They charge a higher rate of interest on loans than what they offer on deposits.
- The difference between what is charged from borrowers and what is paid to the depositors is the main source of income for the banks.
Two Different Credit Situations
| Credit is a crucial element in the economic development of a country because: i. It helps to meet the ongoing expenses of production. ii. It helps in increasing earnings and encourages people to invest in agriculture, engage in business, and set up small industries. iii. It helps in completing production on time. iv. Cheap credit will end the vicious cycle of a debt trap. v. Cheap and easy credit would inspire better investment in technology and would increase competition |
| A debt trap is a situation where an individual or organization becomes trapped in a cycle of debt that they are unable to escape from. This typically occurs when the borrower takes out a loan or credit but struggles to make the required payments due to high interest rates, fees, or other financial obligations. As a result, they are forced to take on additional debt to meet their existing obligations, which can lead to a spiral of increasing debt and financial distress. For example, a small farmer Swapna took a loan for crop cultivation but for some reason, she faced a situation of crop failure. So she took another loan for spraying pesticides but the production was not enough to repay the loan. So, she was caught in a debt trap. |
Terms of Credit
Collateral: It is an asset that the borrower owns (such as land, building, vehicle, livestock, deposits with banks, etc.) and is used as a guarantee to a lender until the loan is repaid.
Banks use collateral as a guarantee until the loan is repaid. If the borrower fails to repay the loan, the lender has the right to sell the asset or collateral to obtain payment.
The main terms of credit are:
- Interest rate
- Collateral
- Documentation requirement
- Mode of repayment
Formal Sector Credit in India
Significance of RBI in the Indian economy:
- In India, the Reserve Bank of India issues currency notes on behalf of the Central Government.
- It supervises the functioning of formal sources of loans.
- The banks maintain a minimum cash balance out of the deposits they receive.
- The RBI monitors that the banks actually maintain the cash balance.
- The RBI sees that the banks give loans not just to profit-making businesses and traders but also to small cultivators, small-scale industries, small borrowers, etc.
- Periodically, banks have to submit information to the RBI on how much they are lending, to whom, at what interest rate, etc.
| Formal Sources of Credit | Informal Sources of Credit |
| i. Credit is provided by banks and cooperatives. | i. Credit is provided by moneylenders, friends, relatives, etc. |
| ii. Rate of interest is low. | ii. Rate of interest is high. |
| iii. No unfair means adopted to take back the money if no re-payment is done. | iii. Unfair measures are adopted. |
| iv. Supervised by RBI. | iv. Not supervised |
| v. Have to adhere to terms of credit i.e., collateral, rate of interest, mode of payment, and documents | v. Other conditions like cultivating land during harvest time, etc. |
Most rural households are still dependent on informal sources of credit because:
- Limited availability of Banks in rural areas.
- People in rural areas face problems with regard to documentation.
- The absence of collateral is one of the major reasons which prevents the poor from getting bank loans.
- Rural people get easy loans from richer households through informal ways.
- Poor people can approach the moneylenders even without repaying their earlier loans.
Self-Help Groups for the Poor
Working
- Self Help Groups pool their savings.
- A typical SHG has 15-20 members, usually belonging to one neighborhood, who meet and save regularly.
- Saving per member varies from Rs. 25 to Rs. 100 or more, depending on the ability of the people to save.
- Members can take small loans from the group itself to meet their needs.
- The group charges interest on these loans but this is still less than what the moneylender charges.
- After a year or two, if the group is regular in savings, it becomes eligible for availing loan from the bank.
Advantages
- People can get timely loans for a variety of purposes and at a reasonable interest rate.
- SHGs are regular in their savings which can be used as monetary help.
- Members can take small loans without collateral to meet their needs.
- Any case of non-repayment of a loan by any one member is followed up seriously by other members of the group.
- Because of this feature, banks are willing to lend to poor women when organized in SHGs, even though they have no collateral as such.
- Due to timely repayment, banks also lend loans to SHGs.
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