Money and Credit
Q15. Who supervises the functioning of formal sources of crdit in India and how ?
Ans. 1. The Reserve Bank of India supervises the functioning of formal sources of loans.
2. The RBI monitors the banks in actually maintaining cash balance.
3.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.
4. Periodically, banks have to submit information to the RBI on how much they are lending, to whom, at what interest rate, etc.
Q16. State the main features of informal sector loan ?
Ans. There is no organisation which supervises the credit activities of the lenders in the informal sector.
2. They can lead whatever interest rate they choose.
3. There is no one to stop them from using unfair means to get their money back.
4. Most of the informal lenders charge a much higher interest on loans.
Q17. How do informal sector put a person into a higher debt trap ?
Ans. 1. the cost to the borrower of informal loans is much higher.
2. Higher cost of borrowing means a larger part of the earnings of the borrowers is used to repay the loan.
3. Hence, borrowers have less income left for themselves .
4. In certain cases, the high interest rate for borrowing can mean that the amount to be repaid is greater than the income of the borrower. This could lead to increasing debt and debt trap.
Q18. Explain how cheap and affordable lead to the development of a country ?
or
How can banks and cooperatives lead to the development of a country ?
Ans. Due to the disadvantages of informal sources of credit and less excessiblity of formal sources banks and cooperatives societies need to lend more.
2. This would lead to higher incomes and many people could then borrow cheaply for a variety
of needs.
3. They could grow crops, do business, set up small-scale industries etc.
4. They could set up new industries or trade in goods. Cheap and affordable credit is crucial for the
country’s development.
Q19. Why is it necessary for banks and cooperatives to increase their lending ?
Ans. 1. It is necessary that banks and cooperatives 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.
Q15. Who supervises the functioning of formal sources of crdit in India and how ?
Ans. 1. The Reserve Bank of India supervises the functioning of formal sources of loans.
2. The RBI monitors the banks in actually maintaining cash balance.
3.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.
4. Periodically, banks have to submit information to the RBI on how much they are lending, to whom, at what interest rate, etc.
Q16. State the main features of informal sector loan ?
Ans. There is no organisation which supervises the credit activities of the lenders in the informal sector.
2. They can lead whatever interest rate they choose.
3. There is no one to stop them from using unfair means to get their money back.
4. Most of the informal lenders charge a much higher interest on loans.
Q17. How do informal sector put a person into a higher debt trap ?
Ans. 1. the cost to the borrower of informal loans is much higher.
2. Higher cost of borrowing means a larger part of the earnings of the borrowers is used to repay the loan.
3. Hence, borrowers have less income left for themselves .
4. In certain cases, the high interest rate for borrowing can mean that the amount to be repaid is greater than the income of the borrower. This could lead to increasing debt and debt trap.
Q18. Explain how cheap and affordable lead to the development of a country ?
or
How can banks and cooperatives lead to the development of a country ?
Ans. Due to the disadvantages of informal sources of credit and less excessiblity of formal sources banks and cooperatives societies need to lend more.
2. This would lead to higher incomes and many people could then borrow cheaply for a variety
of needs.
3. They could grow crops, do business, set up small-scale industries etc.
4. They could set up new industries or trade in goods. Cheap and affordable credit is crucial for the
country’s development.
Q19. Why is it necessary for banks and cooperatives to increase their lending ?
Ans. 1. It is necessary that banks and cooperatives 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.
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