It is a system in which goods are exchanged for other goods.

 Lack of double coincidence of wants Difficulty of storing value. Differed payments are difficult    Some goods are indivisible .

 Anything which is used as a medium of exchange. store of value and standard of differed payments is called money .

 Medium of Exchange. .

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. goods or services in return for the promise of future payment. Credit (loan) refers to an agreement in which the lender supplies the borrower with money.

     Collateral security Documentation required Term of the loan Mode of repayment Rate of interest .

etc.   Farmers need credit to buy seeds. Farmers usually take crop loans at the beginning of the season and repay the loan after harvest. fertilisers pesticides. There is a minimum period of three to four months between the time when the farmers buy these inputs and when they sell the crop. electricity. equipments. .

They follow some well defined rules and procedures . They collect low rate of interest.    Commercial Banks. co-operative societies and Regional Rural Banks constitute the formal sector of credit The Reserve Bank of India supervises the functioning of formal sources of loans.

There is no organisation which supervises the credit activities of lenders in the informal sector. traders. etc. They collect high rate of interest They do not follow any rules or procedures . employers.    The informal lenders include moneylenders. relatives and friends.

30%  Other informal sources – 18%  Co operative Societies – 27%  Banks – 52% . Money Lenders .

 Poor takes 85% credit from informal sources and only 18% from banks and other formal sources Rich takes more than 90% of loans from formal sources So formal sources mostly serve the rich people   .

Poor and ignorant people find it difficult to produce the needed documents. Poor people do not have anything to offer as collateral security Banks are not available in many rural areas Banks do not consider the poor people as credit worthy.    .

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After 2 years the group can get loans from the bank . Rate of interest is low and it is decided by the members.    A SHG has 15-20 members. mostly women of a neighbourhood Each member contributes some money Members can get small amounts as loans from the group.

etc. nutrition. The group will encourage the members to find self employment Members can discuss and act on many social issues such as health. domestic violence. Banks will give loans tp SHGs without any collateral .    Members can get loans at low rate of interest.