In situations with high risks, credit might create further problems for the borrower. Explain.
When the cultivation of any crop is dependent on rain , a natural resource, then the cultivation is risky. If the rains fail there is crop failure, then credit pushes the person into a debt trap. To repay the loan the farmer has to sell his assets. Then he is clearly much worse off than before. Whether credit would be useful or not, therefore, depends on the risks in the situation.
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?