NCERT Solutions for Class 10 Social Science History Chapter 3
Social Science Class 10 Economics
Money and Credit 3
Important NCERT Questions Based on new NCERT Books for Session 2022-2023
Questions No: 5
Why do we need to expand formal sources of credit in India?
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Importance of Expanding Formal Sources of Credit in India:
1. Financial Inclusion: It helps more people, especially those in rural and marginalized areas, to join the formal financial system, enabling them to save and borrow money securely.
2. Economic Growth: Formal credit supports businesses by providing funds for growth, creating jobs, and contributing to the country’s overall economic development.
3. Reducing Dependence on Expensive Loans: It reduces reliance on costly informal lenders, like moneylenders, offering fairer borrowing terms and protecting borrowers from debt traps.
4. Supporting Farmers: Farmers can access formal credit to invest in better equipment, seeds, and technology, improving agricultural productivity and their livelihoods.
5. Empowering Marginalized Groups: It helps marginalized communities, such as women and minorities, by providing resources to start businesses and improve their standard of living.
6. Managing Financial Challenges: Formal credit offers a safety net during financial difficulties, helping individuals and businesses cope with unexpected expenses or emergencies.
7. Establishing Credit History: Access to formal credit allows individuals to build a credit history, which is essential for obtaining larger loans and better terms in the future.
8. Encouraging Savings and Investment: Formal institutions offer various saving and investment options alongside credit facilities, promoting a culture of financial planning and wealth creation.
Expanding formal sources of credit in India is essential for inclusive growth, poverty reduction, and providing opportunities for individuals and businesses to thrive within the formal financial system.
We need to expand formal sources of credit in India due to the following reasons:
(i) The moneylender or the agricultural traders charge a much higher interest on loans. They generally charge 5 per cent per month where as the banks charges about about 10 to 15 percent per annum. The higher rate of interest do little to increase the income of the borrowers.
(ii) The farmers who take loans from a trader are forced to sell their crop to him at low prices. As a result of it, the farmers suffer while the traders make profit by selling grains at high price.
(iii) Higher interest means the borrower has to pay a major portion of his earnings to repay the interest and principal of the loan. This sometimes leads too debt trap for the borrower.
(iv) On the other hands, banks and cooperatives charge less interest and do not exploit the borrowers. Under these circumstances, there is need for expansion of formal sources of credit in Indian. It is necessary that everyone receives this loans.
(v) This would also leads a higher incomes and many people could then borrow cheaply for a variety of needs. The formal credit in India. It is also necessary that everyone receives this loans.
(vi) It may be added that cheap and affordable credit is crucial for the development of the country.
We need to expand formal sources of credit in India due to:
• Eliminate informal sources of credit as they usually charge a high rate of interest and act as a debt trap for the borrower.
• Providing cheap and affordable credit can aid country’s development. Still only half of the total credit needs of the rural people are met by the formal sector.
• Banks and co-operatives should increase their lending, particularly, in rural areas. Without banks help, rural borrowers are majorly dependent on informal sources like moneylenders and middlemen who charge them a high rate of interests.
• Easily available credit can fulfil variety of needs of the people and would generate higher incomes. They will be able to grow crops, do business, set up small scale industries etc.
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