Class 10 : Social Science (In English) – Lesson 20. Money and Credit
EXPLANATION & SUMMARY
🌍 Explanation
🔵 Introduction
Money and credit are essential parts of every economy.
🌿 Money acts as a medium of exchange, solving the problems of the barter system.
💡 Credit allows people and businesses to borrow and invest, stimulating growth.
⚡ However, credit can be a boon or a burden depending on circumstances.
🟢 The Barter System and Its Limitations
Before money, people exchanged goods directly → called barter system.
Example: Wheat exchanged for rice, or cattle for tools.
❌ Limitations:
Double coincidence of wants required.
Difficult to fix values of goods.
Not suitable for complex trade.
💡 Thus, money emerged to replace barter.
🔴 Money as a Medium of Exchange
🌿 Money makes transactions easier by separating the act of sale from purchase.
Example: A farmer sells wheat to a trader and uses that money to buy clothes.
✔️ Eliminates double coincidence of wants.
🏦 Money allows individuals to store value and carry out deferred payments.
🟡 Modern Forms of Money
💵 Earlier forms: coins, precious metals.
📄 Now: paper currency and coins issued by Reserve Bank of India (RBI) and government.
⚡ Accepted because:
Government authorises it as legal tender.
People have faith in its value.
🏦 Demand deposits: Money kept in banks that can be withdrawn on demand by cheque or ATM.
💳 Cheques, debit cards, credit cards, digital payments = modern extensions.
🔵 Credit: Meaning and Importance
💡 Credit = borrowing with promise of repayment with interest.
🏭 Used by farmers, traders, entrepreneurs to meet production and consumption needs.
✔️ Credit supports growth when it helps expand production and income.
⚡ But credit can become a burden if repayment fails.
🟢 Formal and Informal Sources of Credit
✔️ Formal Credit
Sources: Banks, cooperatives.
Regulated by RBI.
Advantages: lower interest, longer repayment time, security for borrowers.
Example: Loans for farming, industry, housing.
⚡ Informal Credit
Sources: Moneylenders, traders, relatives.
Not regulated, often exploitative.
Disadvantages: high interest rates, unfair practices.
Example: A farmer borrowing from a moneylender may lose land if unable to repay.
🔴 Credit and Development
🌿 Positive case: A small farmer borrows for seeds, harvest increases, he repays loan and earns profit → development.
⚡ Negative case: If crop fails, farmer cannot repay, falls into debt cycle → poverty and distress.
💡 Thus, outcome of credit depends on situation.
🟡 The Role of Banks and Cooperatives
🏦 Banks: Provide loans, accept deposits, promote savings.
🌿 Cooperatives: Pool local resources to provide credit at fair terms.
✔️ Both expand access to affordable loans, reduce dependence on moneylenders.
🧠 More access to institutional credit = stronger rural economy.
🔵 Importance of Self-Help Groups (SHGs)
🌿 SHGs are small groups (15–20 members, mostly women).
💡 Members save regularly, create a fund, and provide loans to each other.
⚡ Later linked to banks for larger loans.
🧠 Benefits:
Easy credit without collateral.
Encourages savings habits.
Empowers women socially and economically.
🟢 Problems in India’s Credit System
🌿 Only 30–35% of rural households get credit from formal sources.
⚡ Majority still depend on informal lenders.
🧠 Leads to debt traps and exploitation.
✔️ Challenge: expand reach of banks, make credit more inclusive.
🔴 Conclusion
Money has simplified trade and enabled growth.
Credit is crucial for development but can create inequality if misused.
🌍 India’s future depends on making formal credit accessible to all, strengthening cooperatives, and empowering SHGs.
💡 A fair, reliable credit system supports inclusive economic development.
📝 Summary
🌿 Barter system: limited by need for double coincidence of wants.
💡 Money: solves barter issues, medium of exchange, store of value.
⚡ Modern money: currency + demand deposits, legal tender backed by RBI.
✔️ Credit: can promote growth or create debt, depends on repayment.
🏦 Formal sources: banks, cooperatives, regulated, fair interest.
❌ Informal sources: moneylenders, high interest, exploitative.
🌍 SHGs: empower rural poor, especially women, provide easy credit.
🧠 Need: expand formal credit for inclusive development.
📝 Quick Recap
🔵 Barter → money system for smooth trade.
🟢 Modern money = cash + deposits + digital forms.
🔴 Credit = help or burden depending on situation.
🟡 Formal vs informal credit → inequality in access.
🧠 SHGs strengthen rural credit and empower women.
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QUESTIONS FROM TEXTBOOK
🔵 Question 1: In situations with high risks, credit might create further problems for the borrower. Explain.
🟢 Answer:
🌿 When crops fail or business losses occur, the borrower cannot repay.
⚡ Interest accumulates, increasing the debt burden.
💡 Example: A farmer borrowing for seeds faces crop failure → cannot repay → forced to sell land.
🧠 Thus, instead of improving life, credit may trap borrowers in poverty.
🔵 Question 2: How does money solve the problem of double coincidence of wants? Explain with an example.
🟢 Answer:
🌿 In barter, exchange requires both parties to want each other’s goods.
💡 Money removes this problem by acting as a medium of exchange.
✔️ Example: A farmer sells wheat for money, then buys clothes from a shopkeeper.
⚡ Sale and purchase happen separately without matching wants.
🔵 Question 3: How do banks mediate between those who have surplus money and those who need money?
🟢 Answer:
🏦 People with surplus deposit money in banks.
🌿 Banks pay them interest and keep deposits safe.
⚡ Banks use deposits to provide loans to farmers, traders, industries.
💡 Borrowers repay with interest, part of which is given to depositors.
🧠 Banks thus act as financial intermediaries.
🔵 Question 4: Look at a ₹10 note. What is written on top? Can you explain this statement?
🟢 Answer:
🌿 It says: “Reserve Bank of India, guaranteed by the Central Government.”
💡 This means the note is a legal tender, accepted by everyone.
✔️ RBI issues the currency, and government guarantees its value.
⚡ People trust money because of this official backing.
🔵 Question 5: Why do we need to expand formal sources of credit in India?
🟢 Answer:
🌿 Majority of rural households still depend on moneylenders.
⚡ Informal loans charge high interest, leading to exploitation.
💡 Formal sources like banks and cooperatives provide cheap, regulated credit.
🧠 Expanding them ensures equality, reduces poverty, and supports development.
🔵 Question 6: What is the basic idea behind the SHGs for the poor? Explain.
🟢 Answer:
🌿 SHGs = Self Help Groups of 15–20 members, mainly women.
💡 Members save small amounts, create a fund, and lend to each other.
✔️ Group guarantees repayment, so collateral not needed.
⚡ Later, SHGs link with banks for bigger loans.
🧠 They empower poor households and promote self-reliance.
🔵 Question 7: What are the reasons why the banks might not be willing to lend to certain borrowers?
🟢 Answer:
🌿 Borrowers may have no collateral or security.
⚡ They may have poor repayment history.
💡 Small farmers and labourers may lack stable income.
🧠 Banks avoid lending where repayment risk is high.
🔵 Question 8: In what ways does the Reserve Bank of India supervise the functioning of banks? Why is this necessary?
🟢 Answer:
🌿 RBI ensures banks keep part of deposits as reserve.
⚡ Monitors that banks give loans to priority sectors (farmers, small industries).
💡 Regulates interest rates and credit flow.
🧠 Necessary to protect depositors, control inflation, and ensure stability of economy.
🔵 Question 9: Analyse the role of credit for development.
🟢 Answer:
🌿 Credit helps expand production, buy machinery, improve technology.
💡 Creates employment and raises income levels.
⚡ Positive example: Farmer borrows for seeds, earns more from harvest.
❌ Negative example: Crop failure → debt burden.
🧠 Credit is useful if used productively and with fair terms.
🔵 Question 10: Manav needs a loan to set up a small business. On what basis will he decide whether to borrow from the bank or moneylender? Discuss.
🟢 Answer:
🏦 Bank loan: Lower interest, regulated terms, safer but may need collateral.
🌿 Moneylender loan: Quick and flexible, but high interest, risk of exploitation.
💡 Manav should compare interest rates, repayment terms, and security needed.
⚡ Prefer bank loan if possible, to avoid debt trap.
🔵 Question 11: In India, about 80% of farmers are small farmers, who need credit for cultivation.
(a) Why might banks be unwilling to lend to small farmers?
🟢 They lack collateral and stable income.
(b) What are the other sources from which small farmers can borrow?
🟢 Moneylenders, traders, relatives, SHGs.
(c) Explain with an example how the terms of credit can be unfavourable.
🟢 Farmer borrows from trader at high interest, crop fails → debt increases → forced to sell land.
(d) Suggest some ways by which small farmers can get cheap credit.
🟢 Expansion of banks, cooperatives, SHGs, low-interest loans, easy access in rural areas.
🔵 Question 12: Fill in the blanks.
(i) Majority of the credit needs of the poor households are met from informal sources.
(ii) High costs of borrowing increase the debt-burden.
(iii) Reserve Bank of India issues currency notes on behalf of the Central Government.
(iv) Banks charge a higher interest rate on loans than what they offer on deposits.
(v) Collateral is an asset that the borrower owns and uses as a guarantee.
🔵 Question 13: Choose the most appropriate answer.
(i) In a SHG, most decisions are taken by:
🟢 Answer: (b) Members.
(ii) Formal sources of credit do not include:
🟢 Answer: (c) Employers.
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OTHER IMPORTANT QUESTIONS FOR EXAMS
🔵 Question 1: Which of the following is a modern form of money?
🟡 Options:
🔵 (A) Gold coins
🟢 (B) Paper notes
🔴 (C) Barter goods
🟡 (D) Cowrie shells
🟢 Answer: (B) Paper notes — issued and guaranteed by RBI.
🔵 Question 2: The problem of double coincidence of wants is solved by:
🟡 Options:
🔵 (A) Barter
🟢 (B) Money
🔴 (C) Debt
🟡 (D) Collateral
🟢 Answer: (B) Money — acts as medium of exchange.
🔵 Question 3: Which institution issues currency notes on behalf of the Central Government?
🟡 Options:
🔵 (A) Finance Ministry
🟢 (B) Reserve Bank of India
🔴 (C) NITI Aayog
🟡 (D) SEBI
🟢 Answer: (B) Reserve Bank of India.
🔵 Question 4: Which of these is an example of demand deposits?
🟡 Options:
🔵 (A) Gold ornaments
🟢 (B) Money kept in banks withdrawable by cheque
🔴 (C) Land and property
🟡 (D) Government bonds
🟢 Answer: (B) Money kept in banks withdrawable by cheque.
🔵 Question 5: Collateral means:
🟡 Options:
🔵 (A) Loan taken without any condition
🟢 (B) An asset pledged as guarantee for repayment
🔴 (C) Currency issued by RBI
🟡 (D) Subsidy given by government
🟢 Answer: (B) An asset pledged as guarantee for repayment.
🔵 Question 6: Which is a formal source of credit?
🟡 Options:
🔵 (A) Moneylender
🟢 (B) Bank
🔴 (C) Trader
🟡 (D) Relatives
🟢 Answer: (B) Bank.
🔵 Question 7: Which of these is an informal source of credit?
🟡 Options:
🔵 (A) Cooperative society
🟢 (B) Moneylender
🔴 (C) Commercial bank
🟡 (D) Regional Rural Bank
🟢 Answer: (B) Moneylender.
🔵 Question 8: Self Help Groups are usually formed with:
🟡 Options:
🔵 (A) 5–10 members
🟢 (B) 15–20 members
🔴 (C) 30–40 members
🟡 (D) 50 members
🟢 Answer: (B) 15–20 members.
🔵 Question 9: Which of the following borrowers is most likely to be exploited?
🟡 Options:
🔵 (A) Big industrialist borrowing from bank
🟢 (B) Small farmer borrowing from moneylender
🔴 (C) Teacher taking loan from bank
🟡 (D) Shopkeeper taking loan from cooperative
🟢 Answer: (B) Small farmer borrowing from moneylender.
🔵 Question 10: Which Act provides for 100 days of guaranteed wage employment?
🟡 Options:
🔵 (A) Right to Education Act
🟢 (B) MGNREGA 2005
🔴 (C) Factories Act
🟡 (D) Consumer Protection Act
🟢 Answer: (B) MGNREGA 2005.
🔵 Question 11: Which one is NOT a formal credit source?
🟡 Options:
🔵 (A) Cooperative societies
🟢 (B) Commercial banks
🔴 (C) Employers
🟡 (D) Regional Rural Banks
🟢 Answer: (C) Employers.
🔵 Question 12: Which of the following is a drawback of informal credit?
🟡 Options:
🔵 (A) Low interest rate
🟢 (B) Exploitation due to high interest
🔴 (C) Regulated by RBI
🟡 (D) Accessible to all
🟢 Answer: (B) Exploitation due to high interest.
🔵 Question 13: Which of these is an example of formal sector lending to priority groups?
🟡 Options:
🔵 (A) Moneylender giving loan to trader
🟢 (B) Bank giving crop loan to farmer
🔴 (C) Shopkeeper giving goods on credit
🟡 (D) Relative lending without interest
🟢 Answer: (B) Bank giving crop loan to farmer.
🔵 Question 14: Which group benefits most from SHGs?
🟡 Options:
🔵 (A) Big industrialists
🟢 (B) Poor women
🔴 (C) Government employees
🟡 (D) Traders
🟢 Answer: (B) Poor women.
🔵 Question 15: Why do people trust paper currency?
🟡 Options:
🔵 (A) It is backed by gold
🟢 (B) Guaranteed by government and RBI
🔴 (C) It is cheap to print
🟡 (D) Everyone accepts it
🟢 Answer: (B) Guaranteed by government and RBI.
🔵 Question 16: Which statement about formal credit is true?
🟡 Options:
🔵 (A) It charges high interest rates
🟢 (B) It is supervised by RBI
🔴 (C) It is exploitative
🟡 (D) It has no legal regulation
🟢 Answer: (B) It is supervised by RBI.
🔵 Question 17: Which one is an advantage of SHGs?
🟡 Options:
🔵 (A) No savings habit
🟢 (B) Easy loans without collateral
🔴 (C) Dependence on moneylender
🟡 (D) Exploitation of poor
🟢 Answer: (B) Easy loans without collateral.
🔵 Question 18: Which of the following is NOT a function of banks?
🟡 Options:
🔵 (A) Accept deposits
🟢 (B) Print currency notes
🔴 (C) Provide loans
🟡 (D) Pay interest on deposits
🟢 Answer: (B) Print currency notes — only RBI does this.
🔵 Question 19: Which of the following best describes credit?
🟡 Options:
🔵 (A) Payment without borrowing
🟢 (B) Borrowing with promise of repayment with interest
🔴 (C) Gift of money
🟡 (D) Currency exchange
🟢 Answer: (B) Borrowing with promise of repayment with interest.
🔵 Question 20: What is meant by double coincidence of wants?
🟢 Answer:
🌿 In barter, two people must want each other’s goods for exchange.
💡 Example: A farmer with rice must find a shoemaker needing rice and offering shoes.
⚡ Money removes this condition by acting as common medium.
🔵 Question 21: Mention two features of formal credit.
🟢 Answer:
✔️ Supervised by RBI, transparent rules.
🌿 Lower interest rates than informal sources.
🏦 Examples: banks, cooperatives.
🔵 Question 22: Who issues currency notes in India and why are they accepted as money?
🟢 Answer:
🏦 Reserve Bank of India issues notes on behalf of government.
🌿 They are legal tender, guaranteed by government, so accepted by all.
🔵 Question 23: State two advantages of SHGs.
🟢 Answer:
🌿 Provide easy loans without collateral.
👩 Empower poor women through collective decision-making and savings.
SECTION C — Short Answer (3 marks each; ~60 words)
🔵 Question 24: Why do banks ask for collateral before lending?
🟢 Answer:
🌿 Collateral is an asset kept as guarantee.
⚡ Ensures bank’s security if borrower defaults.
💡 Example: land, house, jewellery.
✔️ Reduces risk of loss for banks.
🔵 Question 25: Differentiate between formal and informal sources of credit.
🟢 Answer:
🏦 Formal: Banks/cooperatives, low interest, regulated by RBI.
⚡ Informal: Moneylenders/traders, high interest, unregulated.
🌿 Formal protects borrowers, informal often exploits.
🔵 Question 26: Explain the role of credit in development with an example.
🟢 Answer:
🌿 Positive: Farmer borrows for seeds, harvest increases, repays loan, income rises.
⚡ Negative: Crop fails, cannot repay, falls into debt.
💡 Shows credit is useful if repayment possible; risky otherwise.
🔵 Question 27: Why do poor households mostly rely on informal sources of credit?
🟢 Answer:
🌿 No collateral or documents → banks refuse.
⚡ Moneylenders, traders easily available.
💡 But they charge high interest, causing exploitation.
🔵 Question 28: How do banks play the role of mediator between depositors and borrowers?
🟢 Answer:
🏦 Accept deposits, pay interest to savers.
⚡ Use deposits to provide loans to borrowers.
🌿 Borrowers repay with interest → part returned to depositors.
💡 Banks thus channel surplus funds to those in need.
SECTION D — Long Answer (5 marks each; ~120 words)
🔵 Question 29: Analyse the role of RBI in regulating credit.
🟢 Answer:
🏦 RBI supervises banks: ensures reserves maintained.
🌿 Regulates interest rates, prevents exploitation.
⚡ Directs credit to priority sectors (farmers, small industries).
💡 Issues currency notes as legal tender.
✔️ Ensures stability, protects depositors, controls inflation.
🔵 Question 30: Explain how informal credit can be harmful.
🟢 Answer:
⚡ Moneylenders charge high interest (up to 36% or more).
🌿 Terms often exploitative → land or assets seized if unpaid.
💡 Example: Small farmer borrows, crop fails, debt multiplies.
🧠 Leads to poverty, distress, sometimes suicides.
✔️ Expanding formal credit reduces such exploitation.
🔵 Question 31: Discuss the importance of Self Help Groups (SHGs) in rural development.
🟢 Answer:
👩 Groups of 15–20, mostly women, pool savings.
🌿 Provide collateral-free loans at fair interest.
💡 Link with banks for larger funds.
⚡ Encourage savings, self-reliance, women empowerment.
✔️ Strengthen local economy and reduce dependence on moneylenders.
🔵 Question 32: Why is it important to expand formal sources of credit in India?
🟢 Answer:
🌿 Only 30–35% of rural households get institutional credit.
⚡ Informal credit traps poor in debt.
🏦 Expanding banks/cooperatives ensures cheap, fair loans.
💡 Promotes equality, reduces poverty, supports development projects.
✔️ Inclusive growth needs wider access to formal credit.
SECTION E — Case/Source-Based (4 marks each; 1+1+2)
🔵 Question 33 (Case 1):
“A farmer borrows from trader at high interest. Crop fails, he cannot repay.”
(i) Which type of credit is this? (1)
(ii) Why risky? (1)
(iii) Suggest a better alternative. (2)
🟢 Answer:
(i) Informal credit.
(ii) Exploits farmers, debt trap.
(iii) Bank loans, cooperatives, SHGs → lower interest, fair terms.
🔵 Question 34 (Case 2):
“An SHG of 20 women saves ₹500 each monthly and gives loans to members.”
(i) What is this practice called? (1)
(ii) Why no collateral needed? (1)
(iii) How does it empower women? (2)
🟢 Answer:
(i) Self Help Group.
(ii) Group guarantee replaces collateral.
(iii) Provides easy credit, builds savings habit, gives women decision-making power.
🔵 Question 35 (Case 3):
“Bank provides crop loan at 8% interest, moneylender demands 30%.”
(i) Which is formal credit? (1)
(ii) Which is informal? (1)
(iii) Why is formal credit better? (2)
🟢 Answer:
(i) Bank loan.
(ii) Moneylender loan.
(iii) Lower interest, transparent, supervised by RBI, safer for borrower.
SECTION F — Map Skill (5 marks)
🔵 Question 36 (a): On an outline map of India, mark two regions with high SHG activities.
🟢 Answer:
🌿 Andhra Pradesh.
👩 Kerala.
🔵 Question 36 (b): On a world map, mark three countries with strong cooperative credit systems.
🟢 Answer:
🌍 India.
🏢 Germany.
🌿 Bangladesh.
For Visually Impaired Candidates:
(i) Name two Indian states with active SHGs.
(ii) Name three countries with strong cooperative credit.
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