Quick Revision Notes: Economics - Class 10

Chapter: Money and Credit (मुद्रा और साख)

Money (मुद्रा): Anything that is generally accepted as a medium of exchange, unit of account, and store of value.
Medium of Exchange (विनिमय का माध्यम): Money acts as an intermediate in the exchange process, eliminating the need for a double coincidence of wants.
Double Coincidence of Wants (आवश्यकताओं का दोहरा संयोग): What a person desires to sell is exactly what the other wishes to buy. Money solves this major problem of the barter system (वस्तु-विनिमय प्रणाली).

Currency (करेंसी): Paper notes and coins. In India, the Reserve Bank of India (RBI) issues currency notes on behalf of the central government.
Legal Tender (वैध मुद्रा): Money that cannot be refused in settlement of transactions in a country.
Deposits with Banks (बैंकों में निक्षेप): People hold money as deposits in bank accounts.
Demand Deposits (माँग जमा): Deposits in bank accounts that can be withdrawn on demand.
Cheque (चेक): A paper instructing the bank to pay a specific amount from the person’s account to the person in whose name the cheque has been made.

How Banks Work: Banks keep only a small proportion of their deposits (around 15% in India) as cash with themselves to pay the depositors who might come to withdraw money.
Extending Credit: The major portion of deposits is used to extend loans for various economic activities where high demand for loans exists.
Interest Rate (ब्याज दर):
- Banks charge a higher interest rate on loans than what they offer on deposits.
- The difference between what is charged from borrowers and what is paid to depositors is the main source of income for banks.

Every loan agreement specifies certain conditions. These include:

Collateral (संपार्श्विक/गिरवी): An asset that the borrower owns (such as land, building, vehicle, livestock, deposits with banks) and uses this as a guarantee to a lender until the loan is repaid.
Interest Rate (ब्याज दर): The cost of borrowing money, specified in the loan agreement.
Documents Required (आवश्यक कागजात): Proof of employment, income, and identity.
Mode of Repayment (पुनर्भुगतान का तरीका): How the principal and interest will be paid back.

Feature	Formal Sector (औपचारिक क्षेत्र)	Informal Sector (अनौपचारिक क्षेत्र)
Sources	Banks and Cooperatives (बैंक और सहकारी समितियाँ)	Moneylenders, traders, employers, relatives, friends (साहूकार, व्यापारी, रिश्तेदार आदि)
Supervision	Supervised by the Reserve Bank of India (RBI).	No organization supervises their credit activities.
Interest Rates	Generally low and regulated.	Very high, leading to heavy debt traps.
Collateral	Usually required.	May or may not be strictly required initially, but exploitative.

Debt Trap (कर्ज जाल): A situation where recovery from a loan is very painful, and the borrower is pushed into a situation from which recovery is difficult. Often happens with informal loans due to high interest rates.

Definition: A typical SHG has 15-20 members, usually belonging to one neighborhood, who meet and save regularly.
Key Functions:
- Small Savings: Members save regular amounts (ranging from Rs. 25 to Rs. 100 or more depending on ability).
- Providing Loans: Group provides small loans to its members meeting their needs without collateral at reasonable interest rates.
- Overcoming Collateral Issue: Banks are willing to lend to SHGs even though they have no collateral, once the group becomes regular in savings.
- Empowerment: It helps women become financially self-reliant and provides a platform to discuss various social issues.

Barter System (वस्तु-विनिमय प्रणाली): Direct exchange of goods without the use of money.
RBI (भारतीय रिजर्व बैंक): The central bank of India that controls the monetary policy and supervises formal sector credit.
Cooperative Societies (सहकारी समितियाँ): Another major source of cheap credit in rural areas.