Page 91 - Understanding Economics for Class 10

3. What is credit? How can credit be both an asset as well as a debt trap. Explain with the
help of an example?
Ans. Credit refers to an agreement in which the lender supplies the borrower with money, goods
or services in return for the promise of future payment.
Goyal Brothers Prakashan
(i) Example of credit as an asset: During the festival season, a shoe manufacturer
has received an order of making shoes in bulk, within a month’s time. To complete
production, he hired some extra workers and has to purchase the raw materials. He
asks the supplier to supply leather now and promises to pay him later. Then he took
some advance payment from the trader. By the end of the month, he is able to deliver
the order, make a good profit and repay the money he had borrowed.
(ii) Example of credit as debt trap: A farmer picks up the loan from a moneylender to
meet the expenses of cultivation. But unfortunately the crop is hit by the pests and
fails. So, he is unable to repay the loan and debt grows larger with interest. Next year,
he picks up a fresh loan and is able to have a normal crop that year. But earnings are
not enough to pay the earlier debt. So, he is caught in a debt trap. He can repay the
loan, only after selling a part of the land.
In shoemaker’s case, credit plays a vital and positive role, whereas in farmer’s case
credit pushes the borrower into a situation from which recovery is very painful.

4. Write a note on the success story of ‘Grameen Bank of Bangladesh’.
Ans. Grameen Bank of Bangladesh was founded by Prof. Muhammad Yunus (a recipient of Nobel
Peace Prize for the year 2006) in year 1970. Grameen Bank of Bangladesh is one of the
biggest success stories in reaching the poor to meet their credit needs at reasonable rates.
It started as a small project in 1970s. In 2018, Grameen Bank had over 9 million members
in about 81,600 villages spread across Bangladesh. Borrowers mainly consists of women
who belong to the poorest sections of the society. These poor women have started ‘self-
employment’ projects by taking credit from this Grameen bank. This credit has positive
impact on these women as they started a gainful employment, which helped them not only
to repay their loan but also to earn a good living for themselves and their family. It has
proved that poor women are reliable borrowers and they also have the capability to run a
variety of small income-generating activities successfully.

5. Dhananjay is a government employee and belongs to a rich household whereas Raju is a
construction worker and comes from a poor rural household. Both are in need and wish to
take loan. Create a list of arguments explaining who between the two would successfully
be able to arrange money from a formal source. Why?
Ans. Dhananjay will be able to get loan from a formal source because:
(i) Bank loans require proper documents which Raju would not be able to provide
(ii) Collateral- Since Dhananjay is a rich household, he must be having assets to provide as
collateral whereas Raju is poor so he lacks in providing collateral. Absence of collateral
is one of the major reasons which prevents the poor from getting bank loans.
(iii) The repaying capacity of Dhananjay is good since he is having a stable job with regular
income whereas Raju does not have a regular job and income. Hence, his repaying
capacity is poor..

6. Why is cheap and affordable credit important for the country’s development?
Ans. People need credit (loan) to carry out various economic activities. Some want to do business,
some want to buy new houses, some want to set up new industries or trade in goods, and
so on. Cheap and affordable credit will help these people to grow in their fields which will
ultimately contribute in the county’s development.
E-82 Economics Class X