Tag: commercial studies

When a poor person takes a loan he does find it convenient to go to a bank basically because he is uneducated and even does not have a collateral to present in a bank.
Hence he reaches out to the informal sources of credit which are basically the moneylenders. When he goes to moneylenders the rates of interest charged by them is very high but since the borrower is in need he has no other option.

• Credit means agreement between borrower and lender by which borrower lends money, goods and services in return for the promise of future payment.
• If credit not repaid by the borrower then they are termed as defaulters.
• Credit history of the borrowers will be affected.
• In India, RBI supervises the credit of banking system.
  

Credit means agreement between borrower and lender by which borrower lends money, goods and services in return for the promise of future payment.
Economic growth is crucial for the economic development of the country.
Cheap and affordable credit (cheap interest rates) is crucial for economic growth of any country.

• Money lenders are the indigenous bankers of India.
• Usually, they lend money on short term basis. 
  
• Collateral in form of gold is taken from borrowers.
• Money lenders are not supervised or controlled by RBI in India.

Small farmers borrow money for cultivation from money lenders.
They borrow money from money lenders because they don't have any form of security (collateral) as requested by the formal sources of credit. 
Small farmers often get exploited with higher interest from money lenders.

In a SHG (Self Help Group) important decisions in regard to loan and savings are taken by group members. Self Help Groups issue loans at reasonable rate of interest

1:Self Help Group members usually belong to one neighbourhood.
2:Self Help Group is a small group of 15 to 20 people formed to mutually help each other.
3:Banks supports SHGs by means of bank linkage programme.

Self Help Group is a small group of organization of 15 to 20 people formed to mutually help each other.
Self Help Groups help in promoting Self Employment , credit, awareness and savings.
Banks support SHGs by means of Bank Linkage programme.

Collateral is a type of a security taken by the banks from its customers.Collateral can be in the form of fixed deposit,  property documents, etc.Rural farmers/ Marginal farmers/ Landless labourers occupy the majority of rural poor population and savings of rural poor is negligible. 
Providing collateral to bank for borrowing loans is a big challenge for rural poor.
Thus banks usually reject loans to rural poor due to the non presence of collateral security by poor.

Saving per member of a SHG varies from Rs 25 to Rs 100 or more, depending upon the ability of the people to save.
Savings led to capital formation and later led to investment in ventures.
SHGs led to economic empowerment of women in India.