Analyse the role of credit for development.
The crucial issue of credit is its availability to all, especially the poor, and on reasonable terms. The availability of credit is the right of the people and without this credit a large section of the population would be kept out of the development process.
As Professor Muhammad Yunus, the founder of Grameen Bank and recipient of 2006 Nobel Prize for Peace said, “If credit can be made available to the poor people on terms and conditions that are appropriate and reasonable, then millions of small people with their millions of small pursuits can add up to create the biggest development wonder.”
It is essential that the total formal sector credit increases so that the dependence on the more expensive informal credit becomes less. Also, the poor should get a much greater share of formal loans from banks, cooperative societies etc. Both these steps are important for development.
In situations with high risks, credit might create further problems for the borrower. Explain.
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.
In India, about 80 per cent of farmers are small farmers, who need credit for cultivation.
(a) Why might banks be unwilling to lend to small farmers?
(b) What are the other sources from which the small farmers can borrow?
(c) Explain with an example how the terms of credit can be unfavourable for the small farmer.
(d) Suggest some ways by which small farmers can get cheap credit.
How does money solve the problem of double coincidence of wants? Explain with an example of your own.
In what ways does the Reserve Bank of India supervise the functioning of banks? Why is this necessary?
In what ways does the Reserve Bank of India supervise the functioning of banks? Why is this necessary?