Money is something people accept in exchange for goods and services.
For example, a shopkeeper accepts money for a notebook. The shopkeeper can then use that money to buy food or other things.
Money makes buying and selling easier because people do not need to exchange goods directly.
The barter system is a system in which goods are exchanged directly for other goods.
For example, a farmer may exchange wheat for shoes.
The problem is that both people must want what the other person has.
The farmer must want shoes, and the shoemaker must want wheat at the same time.
This is called the double coincidence of wants.
Double coincidence of wants means that both people in an exchange must want each other’s goods.
For example:
A shoemaker has shoes but wants wheat.
A farmer has wheat but wants clothes.
The shoemaker and farmer cannot directly exchange unless the farmer wants shoes.
Money solves this problem because everyone accepts it.
A shoemaker can sell shoes for money.
The shoemaker can then use the money to buy wheat from a farmer.
The farmer can use the money to buy clothes from someone else.
Money acts as an intermediate step between buying and selling.
In earlier times, people used different items as money.
Examples included:
Grains
Cattle
Salt
Shells
Gold
Silver
Copper coins
These items were used because people considered them valuable and accepted them in exchange.
Modern money mainly includes:
Currency
Bank deposits
Currency includes:
Notes
Coins
In India, currency is issued by the Reserve Bank of India, except for one-rupee notes and coins, which are issued by the Government of India.
People accept currency because it is authorised by the government and trusted by the public.
Currency is money in the form of notes and coins.
It is accepted as a medium of exchange because:
It is issued by the government.
It has an official value.
People trust it.
Everyone accepts it for payment.
Currency makes transactions quick and convenient.
People deposit money in bank accounts.
The money in a bank account can be withdrawn when needed.
Bank deposits are considered money because they can be used to make payments.
People can use:
Cheques
Debit cards
Online transfers
Mobile banking
ATMs
UPI payments
Demand deposits are bank deposits that people can withdraw whenever they want.
They are called demand deposits because the depositor can demand the money at any time.
Demand deposits are useful because:
They keep money safe.
They earn interest.
They can be used for payments.
They are easier to carry than cash.
A cheque is a written instruction to a bank to pay a specific amount of money from one person’s account to another person.
For example, a shopkeeper may accept a cheque instead of cash.
The bank transfers the money from the buyer’s account to the seller’s account.
Cheques reduce the need to carry large amounts of cash.
Modern payment methods include:
Debit cards
Credit cards
Internet banking
Mobile banking
UPI
QR codes
Point-of-sale machines
Bank transfers
Cheques
These methods allow people to pay without using physical cash.
Banks perform two important functions:
They accept deposits from people.
They provide loans to people and businesses.
Banks keep only a small part of deposits as cash. They lend the remaining money to borrowers.
Suppose many people deposit money in a bank.
The bank keeps some cash to meet daily withdrawals.
It lends the remaining money to:
Farmers
Shopkeepers
Businesses
Households
Students
Industries
The bank charges interest on loans.
The bank also pays interest to people who keep deposits.
The difference between the interest received from borrowers and the interest paid to depositors helps the bank earn income.
Credit means receiving money, goods, or services now and promising to pay later.
A loan is a common form of credit.
People may borrow money for:
Farming
Starting a business
Buying a house
Paying school fees
Medical treatment
Buying equipment
Marriage expenses
Daily needs
A credit arrangement includes important conditions.
These conditions usually include:
Amount borrowed
Rate of interest
Time period for repayment
Method of repayment
Security or collateral
Documents required
The borrower must understand these conditions before accepting a loan.
Interest is the extra amount paid by the borrower to the lender.
For example, if a person borrows ₹10,000 and repays ₹11,000, the extra ₹1,000 is interest.
A high interest rate makes loans more expensive.
A low interest rate makes loans easier to repay.
Collateral is an asset used as security for a loan.
Examples include:
Land
House
Vehicle
Livestock
Bank deposits
Jewellery
Property documents
If the borrower fails to repay the loan, the lender may sell the collateral to recover the money.
Formal sources of credit are regulated by the government or financial authorities.
Examples include:
Banks
Cooperative societies
Formal lenders follow rules and usually charge lower interest than moneylenders.
They may ask for:
Proof of identity
Income documents
Property documents
A repayment plan
Collateral
Informal sources of credit are not usually controlled by the government.
Examples include:
Moneylenders
Traders
Employers
Relatives
Friends
Landlords
Informal lenders may give loans quickly, but they often charge high interest.
Borrowers may also face unfair conditions.
Formal credit is usually safer because:
It is regulated.
Interest rates are generally lower.
Loan conditions are written.
Borrowers have legal protection.
Informal credit can be risky because:
Interest rates may be very high.
Conditions may not be written.
Lenders may exploit borrowers.
Borrowers may fall into a debt trap.
Poor people may not be able to get bank loans because:
They do not own property.
They cannot provide collateral.
They lack regular income.
They do not have proper documents.
Banks may be far away.
The loan application process may be difficult.
Moneylenders may provide loans quickly without asking for much paperwork.
However, they often charge very high interest.
A debt trap happens when a borrower is unable to repay a loan and has to borrow again.
For example:
A farmer borrows money at high interest.
The crop fails.
The farmer cannot repay the loan.
The farmer borrows more money.
The debt keeps growing.
The borrower may eventually have to sell land, jewellery, livestock, or other assets.
Credit can help people improve their lives when the conditions are reasonable.
For example:
A farmer borrows money to buy seeds and fertilisers.
A good harvest helps the farmer repay the loan.
The farmer earns a profit.
The family’s income improves.
Credit can support:
Production
Employment
Business growth
Education
Housing
Better living conditions
Credit can become harmful when:
The interest rate is high.
The borrower’s income is uncertain.
The business fails.
The crop fails.
The borrower has no protection.
The repayment period is too short.
In such cases, credit may create a debt trap.
The terms of credit include:
Interest rate
Collateral
Documents
Time period
Repayment conditions
Different borrowers may receive different terms.
A wealthy borrower may get a low-interest bank loan.
A poor borrower may be forced to borrow from a moneylender at a high interest rate.
Affordable credit means loans with reasonable interest rates and fair conditions.
It is important because it helps people:
Start businesses
Buy farming equipment
Improve production
Build houses
Pay for education
Manage emergencies
Create jobs
Affordable credit also reduces dependence on moneylenders.
Self-help groups, or SHGs, are small groups of people who save money together.
Most self-help groups have about 15 to 20 members.
Members usually:
Save a small amount regularly.
Pool their savings.
Give small loans to group members.
Charge reasonable interest.
Repay the loans over time.
Self-help groups help people who cannot easily get bank loans.
They provide:
Small loans
Low-interest credit
No need for large collateral
Support during emergencies
Regular saving habits
Financial independence
Business opportunities
They are especially helpful for women in rural areas.
After a self-help group shows regular saving and repayment, banks may provide loans to the group.
The group then lends money to its members.
This makes it easier for poor people to access formal credit.
The group is responsible for ensuring that members repay their loans.
Self-help groups help women become more independent.
Women may use loans to:
Buy livestock
Start small shops
Stitch clothes
Sell food
Make handicrafts
Run small businesses
Pay school expenses
Women also gain confidence and participate more in household decisions.
The Grameen Bank was established in Bangladesh.
It provides small loans to poor people, especially women, without requiring traditional collateral in many cases.
The borrowers form groups and support one another in repayment.
The idea shows that poor people can repay loans when they receive fair credit and proper support.
The Reserve Bank of India supervises formal sources of credit.
It ensures that:
Banks maintain enough cash.
Banks follow rules.
Banks provide loans responsibly.
Borrowers are not treated unfairly.
Banks report important information.
The banking system remains stable.
The Reserve Bank also regulates the currency system.
Formal credit must reach more people, especially:
Small farmers
Rural workers
Small businesses
Women
Low-income families
Workers in remote areas
Expanding formal credit can reduce dependence on moneylenders.
It can also reduce exploitation and support economic development.
Demonetisation happens when the government declares that certain currency notes are no longer legal tender.
In India, ₹500 and ₹1,000 notes were declared invalid in November 2016.
People had to deposit or exchange those notes through banks within a specified period.
The purpose included:
Reducing unaccounted money
Encouraging bank deposits
Reducing illegal cash transactions
Encouraging digital payments
Digital payments allow people to transfer money electronically.
Examples include:
UPI
QR codes
Mobile banking
Internet banking
Debit cards
Credit cards
Bank transfers
Point-of-sale machines
Digital payments reduce the need to carry cash.
However, people need:
Bank accounts
Mobile phones
Internet access
Digital knowledge
Protection from online fraud
Money is used for:
Buying food
Paying school fees
Paying rent
Travelling
Paying electricity bills
Buying clothes
Receiving salaries
Running businesses
Credit is used for:
Farming
Education
Housing
Medical care
Business
Emergencies
Both money and credit are essential for modern economic life.
Money makes exchange easy by removing the problem of double coincidence of wants.
Modern money includes currency and bank deposits.
Banks accept deposits and provide loans.
Credit can help people increase their income, but high interest and difficult repayment conditions can create a debt trap.
Formal credit from banks and cooperatives is generally safer than informal credit from moneylenders.
Self-help groups help poor people, especially women, access affordable loans.
A strong financial system should provide safe, affordable, and accessible credit to everyone. jess203.pdf