Money & Credit
v Money - Anything which is generally accepted as payment for goods & services.
v Main Function – Medium of Exchange
v History of Money
Ø Barter system existed – prehistoric times
Ø Double coincidence of wants main feature
Ø Later ‘cowry’ (sea shells ) came into usages
Ø Acc. To Herodotus ‘lydians’ (people around black sea ) were the first to introduce the use of gold & silver coins (650-600B.C)
Ø Punch –Marked coins (2500 years ago) ,earliest coins.
Ø Gupta Coins- Gold & Silver
Ø Tughlaq- Token Currency
Ø Akbar – gold mohar
Ø Paper Money was first used in China (7 century A.D)
Ø Money avoid the inefficiencies of barter system, such as ‘double coincidence of wants’
v Modern form of currency
1. Cash (Bank Notes & Coin)
Ø Not made of precious metals- stainless steel
Ø Authorized by Govt.
Ø No Individual Can Legally refuse a payment made in rupee .
2. Demand Deposits
Ø i.e Money Deposited with banks .
Ø Banks accept deposit & also Pay Interests.
Ø Deposits in banks can be withdrawn on demand.
Ø Cheque facility directly settle payments without use of cash . In India cheque is valid for 3 months from the date of issue .
v Credit (loan)
Ø A Contractual agreement in which borrower receives something valuable & agrees to repay the lender at some later time .
v Bank Credit
Ø India banks keep 15% as cash and 85% is given as loan to borrower.
Ø Depositor might ask for cash.
Ø Banks use the major portion to extend loans.
Ø Thus Banks mediate those who have surplus funds( depositor) and those who need funds (borrower) .
v Terms of credit
I. Collateral: asset that borrower own which is a guarantee to a lender until loan repaid.
II. Interest Rate
IV. Mode of Repayment
v Two Different credit situation
Ø Situation one – Earning improves
Ø Situation two –debt trap mainly agricultural Sector.
v Formal Sector
II. Co operatives
Ø RBI Supervise functioning of formal source of loan .
I. Monitors cash balance
II. Monitors Loans available to cultivators & small scale industries.
III. Periodic auditing of loans , interest rate etc.
Ø Formal sector meets ½ of rural credit needs.
v Informal Sector
Ø No Organizational Supervision
Ø Lenders- Money lenders, traders, employers, relatives & friends.
Ø High Interest rate
v SHGs (Self Help Groups )
Ø 15- 20 members
Ø Pool their savings
Ø Give Loan to members in need .
I. A.T.M: Automated Teller Machine
II. Smart Money : Credit Card
III. D.D. : Demand Draft