Page 90 - Understanding Economics for Class 10

(iii) Banks mediate between those who have surplus funds and those who are in need of
these funds. Thus it helps in the economic development of the nation.

15. Write about the importance of Self Help Groups in providing loan to poor?
Goyal Brothers Prakashan
Ans. Poor are being exploited when they take credit from informal sources.
So, Rural poor are organised, particularly women, into small Self-Help Groups (SHGs) and
their savings are pooled (collected)
(i) Self Help Groups help in pooling the savings of the members, who are poor people.
(ii) Members can get timely loans for a variety of purposes
(iii) They get loan at a reasonable rate of interest
(iv) It helps borrowers to overcome the problem of lack of collateral and documentation
(v) It saves them from exploitation of the money lenders.
(vi) This interest income becomes an extra source of income of the members

vi. Long answer type Questions
1. ‘Cheap and affordable credit is essential for poor households both in rural and urban areas’.
In the light of the above statement explain the social and economic values attached to it.
Ans. Social values attached to credit:
(i) Poverty can be reduced, if people get cheap and affordable credit. They will be able
to earn at least their bare minimum by engaging themselves into various economic
activities.
(ii) Poor people are exploited by moneylenders. They can be saved by providing cheap
credit. This develops self-reliance and financial security among them. They enjoy a
certain amount of freedom which was otherwise impossible.
Economic values attached to credit:
(i) Cheap and affordable credit helps people in carrying out their various economic activities.
They could grow crops, do business, set up small-scale industries, etc. They could set
up new industries or trade in goods.
(ii) By providing cheap and affordable human beings can be converted into human resource as
they will also start contributing credit to economic growth and development of the country.

2. Write the merits and demerits of ‘formal sector of credit’ in India.
Ans. Following are the merits and demerits of formal sector of credit in India:
Merits
(i) It helps to meet the working capital needs of production.
(ii) It helps in ongoing expenses of production thereby helps in completing production on time.
(iii) Earnings can increase if people start taking loan from formal sources
(iv) Formal sources gives loan at a comparatively low interest rates.
(v) Since RBI keeps a check on working of all the banks, unfair practices are prevented.
(vi) Loans are provided not only to rich household but to all those who want to start their own
small business.
Demerits
(i) Difficulty in obtaining loans
(ii) There is absence of collateral in case of rural areas so poor find it difficult to take loan
from formal sources.
(iii) Documentation could be a problematic issue for few
(iv) Lack of credibility in rural areas.

Economics Class X E-81