Ans) If a person has money, he can exchange it wisely to buy any goods or services. For example, a shoe manufacturer wants to buy wheat by selling shoes in the market. The shoe maker will first receive money in exchange for shoes and then use this currency to buy wheat.

It the shoe maker had directly exchanged the shoe for wheat without using the currency, he would have been in trouble. He has to find such wheat farmer who not only want to sell wheat but also want to buy shoes. In other words, both parties should agree to buy and sell things from each other. This is called double coincidence of wants. What one person wants to sell, the same thing another person wants to purchase. In a barter system, where goods are exchanged without using the money, a double coincidence of wants is an essential feature.

Ans) We need to expand formal sources of credit in India for following reasons:-

1. The formal sector still meets only about half of the total credit needs of the rural people. The remaining credit needs are met from informal sources. Most loans from informal lenders carry a very high interest rate and do little to increase the income of the borrowers. Thus, it is necessary that banks and co-operatives increase their lending particularly in the rural areas, so that the dependence on informal sources of credit reduces.
2. While formal sector loans need to expand, it is also necessary that everyone receives these loans. At present, it is the richer households who receive formal credit whereas the poor have to depend on the informal sources. It is important that the formal credit is distributed more equally so that the poor can benefit form the cheaper loans.

Ans) The basic idea behind the SHGS for the poor is as follows:-

1. To organise rural poor, in particular, women, into small SHGS and pool (collect) their savings.
2. A typical SHG has 15-20 members, usually belonging to one neighbourhood, who meet and save regularly. Saving per member varies from 25 to 100 or more, depending on the ability of the people to save.
3. 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 moneylenders charges.
4. After a year or two, if the groups is regular in savings, it becomes eligible for availing loan from the bank. Loan is sanctioned in the name of the group and is meant to create self-employment opportunities for the members.

Ans) ATM (Automated Teller Machine) means a system in which money can be withdrawn at any time. Its card is made of plastic and a metal chip is attached to it, on which all the details related to the bank account are recorded. Only certain amount of money can be taken out from ATM in a day. This amount of money may be different for ATM cards of different banks. Fact is that ATM has made the banking work very simple and convenient.

Ans) Central Bank is the National Bank of the country. This bank is different from other banks. The main function of this bank is to run the banking system of the country systematically and in an organized manner and to control the other banks of the country effectively. The central bank issues paper currency as per the requirement of the country, controls the credit and banking system of the country and acts as the financial representative of the government. Reserve Bank of India acts as the central bank of India.

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Formal Credit	Informal Credit
In formal credit, loans come from banks and cooperative societies.	Informal credit comes from moneylenders, businessmen, relatives, and friends.
This is monitored by Reserve Bank of India.	There is no institution to monitor the activities of moneylenders in this type of credit.
The rate of interest is relatively low.	The rate of interest is relatively high.

Ans) Following are the reasons why the banks might not be willing to lend to certain borrowers:-

1. Some debtors do not have any assets to pledge in the bank.
2. Some borrowers are not in a position to pay back the debts.
3. Some borrowers are already trapped in debt traps; hence, banks do not want to lend.

Ans) The Reserve Bank of India supervises the functioning of formal sources of loans. For instance, we have seen that the banks maintain a minimum cash balance out of the deposits they receive. The RBI monitors the banks is actually maintaining cash balance. Similarly, the RBI sees that the banks give loans not just to profit making businesses and traders but also to small cultivators, small scale industries, to 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.

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