NCERT Notes for Class 10 Social Science (Economics) Chapter 3 – Money and Credit

You will study current types of money and their relationship to the banking system in CBSE Notes Class 10 Economics Chapter 3 – Money and Credit. The second part of the chapter will cover credit and how it affects borrowers in various situations. Therefore, read these notes carefully to have a thorough understanding of these subjects. Additionally, you may download these CBSE Social Science Notes Class 10 in pdf format for future reference during your examinations.

CBSE Class 10 Social Science notes will assist students in studying the topic thoroughly and clearly.

These CBSE Class 10 Social Science notes were written by subject experts who made the study material very basic, both in terms of language and format.

Barter System Of Exchange

Prior to the invention of money, people exchanged goods through a barter system. In this system, things are exchanged directly (without the use of money) between two or more people who agree to trade goods.

For instance, farmers may trade wheat for shoes or vice versa. In this scenario, the farmer and shoemaker should have a mutual need for one another’s products. This is referred to as the double coincidence of desires.

The primary disadvantage of this system was the absence of double coincidence of desires, as trading was impossible without it. The use of money eliminated the requirement for two desires to coincide. Money was widely regarded as a means of transaction.

Modern Forms Of Money

Currency is a modern kind of money (paper notes and coins). Prior to the invention of coins, a range of items such as cereals and livestock served as currency. Additionally, the use of metallic coinage i

NCERT Notes for Class 10 Social Science (Economics) Chapter 3 – Money and Credit

You will study current types of money and their relationship to the banking system in CBSE Notes Class 10 Economics Chapter 3 – Money and Credit. The second part of the chapter will cover credit and how it affects borrowers in various situations. Therefore, read these notes carefully to have a thorough understanding of these subjects. Additionally, you may download these CBSE Social Science Notes Class 10 in pdf format for future reference during your examinations.

CBSE Class 10 Social Science notes will assist students in studying the topic thoroughly and clearly.

These CBSE Class 10 Social Science notes were written by subject experts who made the study material very basic, both in terms of language and format.

n the form of gold, silver, and copper began.


It is a widely accepted kind of currency, consisting of coins and paper notes. It is government-issued and distributed within an economy. Modern currency serves no purpose other than as a vehicle of commerce.In India, the Reserve Bank of India is authorised to issue currency notes only on behalf of the Indian Government. Due to its legal status, the rupee is widely recognised as a medium of trade.

Deposits With Banks

It refers to the funds held in individuals’ bank accounts. Individuals deposit their surplus funds in banks by opening a personal bank account. 

Bank accounts include funds that have been deposited with banks. Banks receive deposits and compensate depositors with interest. Additionally, individuals may withdraw funds as needed. Demand Deposits are deposits held with banks.

Cheque Facility

Cheque is essentially a piece of paper authorising the bank to pay a specified amount from the account of the individual to whom the cheque was issued. Cheques may be used in lieu of cash for payment.

Modern Banking System

Modern money, namely currency and deposits, are inextricably related to the operation of the modern banking system.

Loan Activities Of Banks

Banks take deposits from the general public. This manner, they can amass a sizable deposit. They hold a modest amount of deposits in cash (in India, it is 15%).

This information is retained for depositors who intend to make withdrawals from their accounts. The remainder of the deposits are lent by banks.

When banks provide loans, they charge borrowers a higher rate of interest. This generates revenue for the banks. In this sense, banks serve as a conduit between individuals with excess funds (depositors) and those in need of finances (the borrowers).


Credit or loan is a term that refers to an agreement in which the lender provides the borrower with money, goods, or services in exchange for future payment. Credit plays a significant role in a large number of transactions that occur in our daily lives.

Two Different Credit Situations

  • In the first case, credit is used to cover production costs. When production is complete, earnings increase. Credit plays a beneficial role in this instance.

For instance, Salim, a manufacturer, claims ownership of his business. He receives large orders from traders during the festival season. To ensure that production is completed on time, he requests credit from raw material suppliers.

Additionally, he obtains a cash loan from the trader to cover a portion of the advance payment for the goods to be supplied. Salim is able to deliver the order, earn a profit, and repay the money he borrowed at the end of the manufacturing cycle. This contributes to increased earnings, and as a result, the individual is better off than they were previously.

  • Credit, on the other hand, forces the borrower into a situation from which recovery is extremely difficult and painful.

For instance, Mamta obtains a loan from a moneylender in order to grow groundnut in the hope that her harvest will assist in repaying the loan.
Pests attack the crop halfway through the season, and the crop dies. She is unable to repay the moneylender, and the debt grows to a significant amount over the course of a year. Mamta obtains a new loan for cultivation the following year. 

This year’s crop is normal, but the earnings are insufficient to repay the previous loan. She is ensnared in debt.
She is forced to sell a portion of her land in order to repay the debt. Credit forces Mamta into a debt trap in this situation. Her condition deteriorates further.

Terms Of Credit

It is a collection of terms and conditions that regulate the terms of a loan. It may include the method of payment, the interest rate, the term of the credit, and other conditions such as collateral, documentation requirements, and mode of repayment. Credit terms may differ depending on the lender’s and borrower’s circumstances.


It serves as collateral for loans. It is an asset that the borrower owns and uses as collateral for the loan until it is repaid. If the borrower defaults on the loan, the lender may sell the asset or collateral to recover payment. Land titles, bank deposits, and livestock are all examples of collateral security used to secure loans.

Variety Of Credit Arrangements

Different credit arrangements may exist for different types of borrowers.

These are the:

  • Loans from Moneylenders: Small farmers borrow money at a high rate of interest from village moneylenders. They became trapped in debt as a result of the high interest rates.
  • Loans from Agricultural Traders: Farmers obtain loans at a lower interest rate from agricultural traders. However, traders obtain a promise from farmers to sell their crops exclusively to them.
    Along with profit, the trader ensures that the money is repaid in this manner. He purchases crop from farmers at a discount and sells it at a profit later.
  • Bank Loans: Some farmers obtain bank loans for cultivation at extremely low interest rates and with easy repayment terms. Banks also offer additional services to such borrowers.
  • Employer Loans: Landless agricultural labourers and workers rely on their employers for loan assistance. The landowner may assess an interest rate of up to 5% per month. To repay the loan, the workers work for landowners.
  • Cooperative loans: Cooperative loans are the primary source of low-cost credit in rural areas.
    Loans to cooperative society members may be used for the purchase of agricultural implements, cultivation and agricultural trade, fisheries, and house construction, among other things.

Credit Sources In India

Credit is classified into two types: formal sector credit or loans and informal sector credit or loans.

Banks and cooperative societies are considered to be part of the formal sector. Moneylenders, friends and relatives, traders, landowners, and large farmers all fall into the informal sector.

Features Of Formal Sector Credit

  1. It offers loans at a lower interest rate than other lenders and requires collateral to obtain loans.
  2. The RBI is the primary regulator of this sector (Reserve Bank of India).
  3. Banks and cooperatives are included in this group.

Role Of RBI In Formal Sector

RBI has a major role in providing formal sector credit. Its role is

  • The RBI (Reserve Bank of India) ensures that banks lend not only to profitable businesses and traders, but also to small cultivators, small scale industries, and small borrowers, among others.
  • Banks are required to report to the RBI on a periodic basis how much money they are lending, to whom, and at what interest rate they are lending to borrowers.
  • Banks maintain a minimum cash balance of at least one year’s worth of deposits.
  • The RBI keeps an eye on banks’ cash balances.

Features Of Informal Sector Credit

  1. Due to the lack of a regulatory body, this sector charges higher interest rates on loans.
  2. This sector may result in an increase in debt as borrowers struggle to repay.
  3. Individuals who wish to start a business through informal lending may be prevented from doing so due to the high cost of borrowing. 
  4. However, because informal sources do not require collateral, poor households in urban and rural areas continue to rely on them for borrowing needs.

Self Help Groups (SHGs) For The Poors

A Self Help Group is a group of people who are typically from the same neighbourhood and share similar social and economic circumstances. They meet and save money on a regular basis, according to their ability.

Members of the group (typically 15-20) can borrow small amounts of money from the group to meet their immediate needs. On these loans, the group charges less interest than moneylenders. After one or two years of consistent savings, the group becomes eligible to borrow from the bank.

The loan is made in the group’s name and is intended to promote self-employment by providing funds for the purchase of raw materials, seeds, and assets such as sewing machines, handlooms, and cattle.

SHGs: A Helping Hand For Women

SHGs are the rural poor’s organisational building blocks. SHGs assist women in achieving financial independence, and their regular meetings provide a forum for women to discuss and act on a variety of social issues, including health, nutrition, and domestic violence.

Grameen Bank Of Bangladesh

Professor Muhammad Yunus, founder of Grameen Bank and 2006 Nobel Laureate for Peace, began the bank in the 1970s as a small project. He extended small loans to millions of poor people in a variety of occupations on reasonable terms and conditions.

Question Answer from CBSE NCERT Class 10 Economics Chapter 3 Money and Credit Notes

Q1. In situations with high risks, credit might create further problems for the borrower. Explain.

Answer: When it’s hard to pay back a loan, credit doesn’t help the borrower make more money. Instead, it puts them in a situation from which it’s hard and painful to get out. This is called being stuck in a debt-trap. The borrower then has to give the lender the asset or collateral that was used as a guarantee.

Q2. How does money solve the problem of double coincidence of wants? Explain with an example of your own.


  • A barter system is one in which goods are traded without the use of money. But in this kind of trade, both parties must agree to sell and buy each other’s goods. This is known as a “double coincidence of desires.”
  • Money, as a means of exchange, solves the problem of two people having the same needs at the same time. Money is used in exchanges because a person with money can easily trade it for any good or service he or she wants.
  • Let’s say an ice cream shop owner wants a bike, but the bike maker wants clothes instead of ice cream. In this case, the vendor can use the money to buy a bicycle. In a similar way, the bike maker will spend money on clothes.

Q3. How do banks mediate between those who have surplus money and those who need money?


  • Banks only keep a small portion of their deposits in cash as a reserve to pay depositors who may come to get their money at any time.
  • They use most of their deposits to give loans and act as a middleman between people who have extra money (depositors) and people who need those funds (the borrowers).

The interest rate on loans is higher than the rate on deposits. The difference between what they charge borrowers and what they pay depositors is where most of their money comes from.

Q4. Look at a 10-rupee note. What is written on top? Can you explain this statement? 

Answer: If we look at a 10 rupee note, we find the following words,

Ans. When we look at a 10 rupee note, we see the words,


  • Guaranteed by the Central Government 
  • I promise to pay the bearer the amount of Ten Rupees Signed by the Governor of the Reserve Bank.

Explanation: The Reserve Bank of India and “Guaranteed by the Central Government” are written at the top of a ten-rupee note. It’s a promissory note that can only be given out by the Reserve Bank of India, which controls all money-related activities in India’s formal sector. The statement on the ten rupee note is a way of saying that the RBI is the most important part of making money work.

Q5. Why do we need to expand formal sources of credit in India?


  • Most informal lenders charge much higher interest rates on loans than formal lenders do. It means that informal loans cost the borrower a lot more than formal loans.
  • When the cost of borrowing is higher, more of the borrower’s income goes toward paying back the loan. This leaves the borrower with less money to spend on themselves.
  • A high-interest rate on a loan could mean that the amount owed is more than the borrower can pay back with their income. This could lead to more debt and being stuck in debt.
  • People who want to start a business may not be able to because it costs a lot to borrow money.
  • Because of this, banks and cooperatives have to give out more loans. People’s incomes would go up, and they would be able to borrow money for a wider range of reasons at a lower cost.
  • They can grow crops, run businesses, start new businesses, and so on. They could start new businesses or buy and sell goods.

Access to low-cost, low-interest loans is important for the growth of the country. Because of this, it is important for our country to increase the number of official credit sources.

Q6. What is the basic idea behind the SHGs for the poor? Explain in your own words.

Answer: Self-Help Groups (SHGs) are made up of people who pool their savings to make a fund. This fund is then used to give loans and advances to other members. This helps to lower the number of loans in the informal sector. SHGs help borrowers get loans even when they don’t have enough collateral. They can get loans quickly and at reasonable rates of interest. They help women become financially independent.

Q7. What are the reasons why banks might not be willing to lend to certain borrowers?

Answer: Because of the following reasons, banks are sometimes hesitant to lend to particular borrowers:

  • Some people don’t know how to get a certificate of earnings.
  • Some people have been known to not pay back loans in the past.
  • There are some people who can’t show their employment papers.
  • Some people don’t have anything they can put up as collateral with the bank.
  • A few other people fail to find two people who can back up the loan in case he can’t pay it back.

Q8. In what ways does the Reserve Bank of India supervise the functioning of banks? 

Why is this necessary?


  • The Reserve Bank of India is in charge of making sure that official loan sources work properly.
  • It keeps track of how well banks keep their cash balances.
  • It notes that banks lend money to small growers, small businesses, small borrowers, and so on, as well as to firms and dealers that make money.
  • Banks have to tell the RBI how much money they lend, to whom they lend it, and how much interest they charge.

Q9. Analyze the role of credit for development.


  • A credit arrangement is when a lender gives a borrower money, goods, or services in exchange for the promise that the borrower will pay back the lender in the future.
  • Whether or not credit is helpful depends on the risks of the situation and whether or not there is a backup plan in case of a loss.
  • Credit has helped someone get rich when a borrower gets a loan from a bank to expand his or her manufacturing capacity and is able to do so while paying back the loan on time.

Q10. Manav needs a loan to set up a small business. On what basis will Manav decide whether to borrow from the bank or the moneylender? Discuss.

Answer: Manav is looking for a loan to start a small business. Manav will consider the following variables while deciding whether to borrow from a bank or a moneylender:

  • First and foremost, he must have an asset or collateral that he can use to back up his loan. If he doesn’t have this asset, he won’t be able to get a loan from the bank. In this situation, he will have to go to a moneylender, even though they charge a higher interest rate.
  • If Manav doesn’t know the problems with borrowing from the informal sector, he might not get a loan from a bank at all.
  • If there are no banks near his home or place of work, he will get money from a moneylender.

Q11. In India, about 80 percent of farmers are small farmers, who need credit for cultivation.

(a) Why might banks be unwilling to lend to small farmers? 

Answer: Small farmers may find it hard to get loans from banks because they don’t have enough paperwork, assets, or collateral.

(b) What are the other sources from which the small farmers can borrow? 

Answer: Small farmers also have access to credit from moneylenders, family or friends, self-help groups, and cooperative banks.

(c) Explain with an example how the terms of credit can be unfavorable for the small farmer. 

Answer: If a small farmer has a bad crop, he may have to give his collateral (if he borrowed from a bank) or sell some of his land (if he borrowed from the informal sector) to pay back his debt.

(d) Suggest some ways by which small farmers can get cheap credit.

Answer: Small farmers can get low-cost loans from self-help groups and cooperative banks because they do not need collateral as a guarantee.

Q12. Fill in the blanks: 

(i) Majority of the credit needs of the households are met from informal sources. 

(ii) costs of borrowing increase the debt-burden…..

(iii) issues currency notes on behalf of the Central Government…..

(iv) Banks charge a higher interest rate on loans than what they offer on….

(v) is an asset that the borrower owns and uses as a guarantee until the loan is repaid to the- lender…..


(i) poor 

(ii) High

(iii) Reserve Bank of India

(iv) deposits

(v) Collateral. 

Q13. Choose the most appropriate answer. 

(i) In a SHG most of the decisions regarding savings and loan activities are taken by 

(a) Bank

(b) Members 

(c) Non-government organization 

(ii) Formal sources of credit does not include 

(a) Banks 

(b) Cooperatives 

(c) Employers

Answer: (i)-(b) (ii)-(c). 

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