Page 89 - Understanding Economics for Class 10

11. Self-Help Groups support has brought about a revolutionary change in the rural sector.
Explain.
Ans. (i) The idea is to organize rural poor, particularly women, into small Self Help Groups
(SHGs) and pool their savings. Members can take small loans from the group itself to
Goyal Brothers Prakashan
meet their needs. Interest charged is less than what is charged by the moneylenders.
(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) It provides a platform to discuss and act on a variety of social issues such as health,
nutrition, domestic violence etc.

12. Why do we need to expand formal sources of credit in India? Give reasons.
Ans. There is a need to expand formal sources of credit in India for the following reasons:
(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.

13. “The credit activities of the informal sector should be discouraged.” Support the statement
with arguments.
Ans. The credit activities of the informal sector should be discouraged because:
(i) 85% of loans taken by the poor households in the urban areas are from informal sources.
(ii) Informal lenders charge very high interest on their loans.
(iii) There is no one to supervise the actions of informal sources.
(iv) Higher cost of borrowing means a larger part of the earnings of the borrowers is used
to repay the loan.
(v) 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.
(vi) This could lead to increasing debt and debt trap, therefore the credit activities of the
informal sector should be discouraged.

14. “Deposits with the banks are beneficial to the depositors as well as to the nation”. Examine
the statement.
Ans. Deposits with the banks are beneficial to the depositors as well as to the nation.
Benefits to the Depositors

(i) Banks accepts the deposits and pay interest to the depositor
(ii) People’s money is safe with the banks.
(iii) People can withdraw the money as and when they require.
Benefits to the Nation
(i) Banks use money of the depositor to offer loans.
(ii) There is a huge demand for loans for various economic activities.
E-80 Economics Class X