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Money and Credit

Introduction
Money and credit are both vital tools that help ensure the free flow of the economy. They are vital in buying goods, doing business, and satisfying day-to-day requirements..

What is Money?
Money is what is usually accepted as a medium of exchange. The earlier system of barter, where commodities were exchanged for commodities, was used. But the system was marred with problems such as the lack of a common measure of worth and the incompatibility of wants.
Coins and banknotes replaced bartering with the passage of time.

What is Credit?

Credit is getting money or goods today and paying later. It is also called a loan. Credit can be helpful in the time of need, such as for farming needs, business, education, or medical crises.
Credit can be obtained from institutions like banks, cooperatives, and moneylenders. People take credit on the promise that they will pay it back with interest. But if not paid within time, it may lead to debt trap.

Types of Credit
Formatted Credit – Offered by banks and cooperatives, according to rules and at low interest.
Informal Credit – Offered by moneylenders or traders, sometimes high-interest and few rules.

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1. Akash applied for a loan of ₹4 lakhs from the State Bank of India. The annual interest rate is 12%. The loan period is 3 years, to be repaid in monthly installments. He also submitted proof of employment, salary slip, and a fixed deposit certificate to support his application.

2. In this case, the fixed deposit certificate that Akash had deposited with the bank will be held as collateral. This acts as security for the bank in case he fails to repay the loan according to the agreed terms.

3. Lenders ask for collateral to reduce the risk of non-repayment. If the borrower fails to repay the loan, the lender can seize the collateral to recover the money. It ensures that the borrower takes the loan seriously and adds a layer of security for the bank. It builds trust and reduces financial losses for lenders.

-Cristan / Arnav

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1. ﻿﻿﻿List and discuss the various sources of credit in Sonpur.

answer: Like in many rural areas of India, Sonpur has many different types of credit both formal and informal

FORMAL-

bank loans and cooperatives

INFORMAL-

money lenders, traders/shop-keepers and employers/land owners

2.Which of the sources of credit is better and why? Why do you think Shyamal and Rama did not approach the bank?

answer: FORMAL SOURCES OF CREDIT ARE BETTER BECAUSE :

🦶Lower interest rates – much more affordable than moneylenders.

👂Clear terms – repayment time and conditions are fixed and documented.

👃Regulated – protected by laws, reducing the risk of exploitation.

🦵Promotes savings – encourages people to open bank accounts and save money.

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Yes, common people can avail themselves of formal sources of credit from cooperatives, but with certain conditions and limitations

1. Lower Interest Rates:
Cooperatives often offer loans at lower interest rates compared to informal moneylenders, making them affordable for common people like farmers, small shopkeepers, and laborers.

2. Collective Ownership:
Since cooperatives are run by their members, common people can become members and benefit from the profits and services of the cooperative society.

3. Simpler Procedures:
Compared to banks, cooperatives usually have simpler documentation and easier loan processes, which help people who may not have formal qualifications or collateral.

4. Rural Reach:
Cooperatives are often found in rural and semi-urban areas, where formal banking services are limited. This makes it easier for villagers and farmers to access credit.

5. Limited Funds:
However, cooperatives often have limited financial resources, so they may not always be able to meet the demand for credit from all members.

6. Membership Requirement:
To access credit, people must usually be members of the cooperative, which can be a hurdle for those who are unaware or unable to join.

So, while cooperatives do offer a formal source of credit to common people, their access depends on awareness, membership, and availability of funds.

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Group 2-Shaurya Gupta, Arham Bhandari, Manas Manoj Jangid

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Group 2-Shaurya Gupta, Arham Bhandari, Manas Manoj Jangid

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1. Various sources of credit in sonpur are:

-Money lenders:Moneylenders give quick loans without paperwork, but charge very high interest. Many villagers depend on them, risking lifelong debt traps.

-Traders:Traders lend money to farmers before harvest, but force them to sell crops at low prices. Loans have hidden, unfair conditions.

-Relatives:Relatives and friends offer informal credit without interest. It’s based on trust but has limited funds and can strain relationships later.

-Landlords:Landlords lend to poor farmers or laborers. Often charge high interest or demand labor instead of money, leading to exploitation or bondage.

2. Formal sources are better because:

Lower interest rates – They charge much less than moneylenders or landlords.

Legal protection – Borrowers are protected under law and not exploited.

Fixed terms – Clear rules for repayment, no hidden conditions.

Promotes savings and development – Helps farmers grow their income steadily.

Shyamal and Rama did not approach the bank because they lack the collateral for the bank and since they were farmers and in rural areas it would be easier to access money lenders than banks.

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1.The various sources of credit in Sonpur are:

Moneylender/Land owners

Agricultural trader

Bank loan 2. The better sources agricultural trader as the interest is less and Shyamal would be able to repay the loan. Shyamal and Rama did not reach to the bank because they did not have any sources of collateral to give to the bank.

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Yes, regular people often can get loans and other financial help from Cooperatives. These are like local financial groups, often called cooperative banks or credit societies. They are set up to specifically help their members, who are usually just everyday folks from the community. Cooperatives often have a strong local presence, making them easy to get to, especially in smaller towns or villages. Since members own and control them, cooperatives tend to offer services that actually fit what local people need, unlike bigger banks. While they still have official rules, cooperatives might be a bit more flexible or have simpler requirements for loans than large commercial banks, which helps people who might not have a lot of property or a long work history. Because they are focused on their members and not just making a profit, cooperatives can sometimes offer lower interest rates or fewer fees for smaller loans. Cooperatives are great at bringing financial services to people who might otherwise be ignored by bigger banks.

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challenge question

Why did RBI announce a moratorium during the pandemic?

The RBI announced a pause in March 2020 to support people and businesses affected by sudden lockdowns and income loss from the pandemic. Many individuals lost their jobs or experienced salary cuts, and small businesses faced significant losses. In this situation, borrowers found it hard to pay their monthly loan installments (EMIs) on time.

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The COVID-19 pandemic caused widespread economic disruption due to lockdowns.

Many people lost jobs or faced salary cuts and couldn’t repay their loans on time.

To reduce financial stress, the RBI allowed a moratorium (temporary pause) on loan EMIs from March to August 2020.

This gave relief to borrowers by postponing repayments without marking them as defaulters.

The goal was to prevent loan defaults, maintain financial system stability, and support the economic recovery.

However, interest continued to accumulate, meaning borrowers had to repay more later.

It was a relief, not a loan waiver.

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Which of the sources of credit is better and why? why do you think shyamal and Rama did not approach the bank

best source of credit:

Arun’s bank loan is the best.

Low interest (8.5% per year)

More time to repay

Extra help like cold storage loan

Fair and safe

Shyamal and Rama’s credit is worse:

Shyamal takes loan from trader at high interest (36% per year) and is forced to sell crops to him.

Rama takes loan from her employer at very high interest (60% per year) and stays stuck in debt.

Why didn’t they go to bank?

Shyamal may not have documents or land is too small.

Rama is poor and landless – banks don’t give loans to people like her.

Final point

Bank loans are better, but poor people can’t always get them.

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Challenge question

during the COVID pandemic RBI announced a moratorium to help people who couldnt pay their loans on time. This let borrowers delay repayments without getting a bad credit score. It stopped banks from facing too many bad loans and helped keep the economy steady. The move gave relief to many and helped banks keep lending during tough times.

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Amal Siddi

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Challenge question - Do we have any cooperatives in UAE? Give examples. Create a venn diagram showing similarities and differences between Indian and UAE cooperative systems

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Group 3- Credit facilities poster —Ashlynn D’souza

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Group 3- Credit facilities poster —Ashlynn D’souza

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Group 2 (Myra, Aaliya , Maryam , jenelia, anania, devika) 10I 

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Group 2 (Myra, Aaliya , Maryam , jenelia, anania, devika) 10I 

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Trust plays a very big role in giving and taking loans. When a lender trusts someone, they feel confident that the person will return the money on time. In informal loans, like from friends, relatives, or local moneylenders, trust is often more important than paperwork or security. If there is trust, the lender may give the loan quickly and not even ask for anything in return. Even in banks, if a person has a good history of paying loans back, the bank trusts them more and easily gives new loans. Without trust, it becomes very hard for anyone to get a loan.

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10 I Group 3- Anika,Hana,Zahra,Rakshana 

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10 I Group 3- Anika,Hana,Zahra,Rakshana 

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INDIA -

Formal Credit

Given by banks and cooperatives.

Controlled and checked by the government (like RBI in India).

Interest rates are low and fixed.

Borrowers are protected by rules and laws.

Examples: Banks, cooperative societies.

Informal Credit

Given by moneylenders, shopkeepers, friends, and relatives.

Not controlled by any authority; no one checks their activities.

Interest rates are high and can change from person to person.

Borrowers have little protection; lenders can use unfair means.

Examples: Moneylenders, traders, relatives, friends

UAE-

Formal Credit

From banks, regulated by Central Bank.

Low, fixed interest rates.

Legal protection for borrowers.

Used for homes, cars, business.

Informal Credit

From moneylenders, friends, family.

Not regulated, high interest rates.

Little borrower protection.

Used by those who can’t access banks.

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Group 2 10I (Myra Aaliya Maryam jenelia devika anania) 

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Group 2 10I (Myra Aaliya Maryam jenelia devika anania) 

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Poor people often prefer informal lenders because they are easily accessible and don’t demand paperwork or collateral. Despite high interest rates, they offer quick help in times of urgent need. Challange Question(Ans)

Documents and collaterals can be a barrier because they often require formalities that many people can't easily meet. This limits access to opportunities, especially for those without legal papers or valuable assets.

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HISHAM,AMAN,BILAL

Why poor people prefer informal lenders despite high risks:

1. Quick and Easy Access: Informal lenders provide loans immediately with little or no paperwork, which is important when poor people need money urgently.

2. No Collateral Required: Unlike banks, informal lenders usually do not ask for collateral or security, which poor people often cannot provide.

3. Difficult Access to Formal Credit: Formal banks and financial institutions are often located far from rural areas or have strict rules that poor people cannot meet.

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Ans:-

In UAE: small businesses get support through easy loans and online banking, and women gets support through special programs like the Emirates Women Award.

The government makes it simple to start and grow any business.

In India (rural area): people get help through government schemes like Mudra loans, Self Help Groups (SHGs), and microfinance (helps poor people become self-reliant and earn money). These help women and small businesses get money and open bank accounts.

In conclusion, the UAE uses more digital and modern ways, while rural India uses community support and government help.

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What role SHGs play for low income expats in UAE

1. Save Money Together:
Members put small amounts of money into a group fund regularly.

2. Borrow Money Easily:
When someone needs money for emergencies like medical bills or family support, they can borrow from the group at low or no interest.

3. Learn About Money:
People can be aware on how to save, budget, and use money wisely by being part of the group.

4. Support Each Other:
The group provides emotional support and advice, which helps members feel less alone.

5. Start Small Businesses:
Members can use loans from the group to start small businesses or improve their skills to earn more money.

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Group-1