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Hots Money & Credit

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16 views1 page

Hots Money & Credit

Uploaded by

sanskar80024
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Money and Credit

1. Why do lenders ask for collateral while lending?


Ans. Lenders asked for collateral while lending money to the borrowers due to the following reasons:
a) Lenders demand collateral against loan because it is a security against loan.
b) Collateral is an asset that the borrower owns and uses this as a guarantee to lender until the loan repaid.
c) If the borrower fails to repay the loan, the lender has the right to sell the asset or collateral to obtain payment.
d) Property such as land titles, deposits with banks, livestock, gold, are some common examples of collateral.

2. How will you justify that interest on loans is a main source of income of the banks?
Ans.
a) Banks mediate between those who have surplus funds and those who are in need of these funds. It means that a bank
mediates between borrowers and depositors.
b) Banks charges very high interest rate on loans than what they offer to the depositors. The difference between what is
charged from borrowers and what is paid to depositors is their main source of income.
c) These days’ banks started so many schemes just to attract the borrowers.
d) Banks offer loans at attractive interest rate. The main motive behind all these steps of banks is to earn huge profits.

3. Self-help Groups support has brought about a revolutionary change in the rural sector.
Ans: (i) The idea is to organize rural poor, in particular women, into small Self Help Groups (SHGs) and pool their savings.
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 moneylender charges.
(ii) If the group 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. The SHG is responsible for repayment of the
loan, hence, banks get ready to give loans without collateral.
(iii) Self-help, self-reliance and creating a support system and platform to discuss and act on a variety of social issues such as
health, nutrition, domestic violence etc.
4. Why do we need to expand formal sources of credit in India? Give three reasons.
Ans: (i) The cost of informal loans is much higher and often leads to a debt trap. Also, people who might wish to start
a new enterprise by borrowing may not do so because of the high cost of borrowing in such a case.
(ii) 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 cooperatives increase their lending particularly in the rural areas, so that the dependence of the
poor on informal sources of credit reduces.
(iii) It is important that the formal credit is distributed more equally so that the poor can benefit from the cheaper loans.

Home Work
“The rich households are availing cheap credit from formal lenders whereas the poor households have to pay a heavy
price for borrowing.” Comment. (6 Marks)

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