can someone plzzz send a project on : MONEY AND CREDIT about:
the meaning and importance credit
loan activity :
formal sector(bank): commodity; mobile phone and car
informal sector (money lenders):case study
comparison of formal sector informal sector.
plzzz, no spam
Answers
he terms of credit include rate of interest, collateral and mode of repayment. The terms of credit varies from one loan agreement to another and also on the nature of the lender and the borrower.
Banks keep a small proportion of their deposits as cash with themselves. This is usually 15% of their deposits as cash. This amount is kept as provision to pay the depositors who may come to withdraw the money on any day. This amount is enough because only a small fraction of people come to withdraw money on a given day. The rest of the amount is used by the banks to give money on credit to people who need the credit. A bank charges interest on the loan which it gives to its creditors. The interest rate charged by a bank no loans is higher than the interest rate given by it on deposits. Thus, interest is the main source of income for banks.
While the formal sector is bound by the rules and regulations of the RBI and charge the prevalent rate of interest as per RBI guidelines; the informal lenders are not bound by such rules. The informal lenders usually charge a very high rate of interest. A higher cost of borrowing is often detrimental to the borrower. It usually results in a debt trap for the borrower. The borrower is seldom able to escape the never ending cycle of loan repayment.
Many people are too poor to qualify the requirements of credit-worthiness of banks and cooperatives. There are many others who may not have enough documents; like residential certificate or income certificate. Such people are usually at the mercy of informal lenders.
The informal sector consists of money lenders and friends and relatives, merchants and landlords.
Formal sources of credit
Banks and cooperatives are the formal sources of credit.
Advantages
1. These institutions are regulated by the Reserve Bank Of
India. Their rates of interest for loans are controlled. The rates and terms
are fixed.
2. There is no exploitation by the lenders.
3. Everyone can take a loan that includes big businessmen as
well as the small cultivators or borrowers.
4. The cost of borrowing is usually less.
Disadvantages
1. The procedure to get the loan is time consuming.
2. They require collateral security.
Informal sources of credit
Landlords, traders, moneylenders, employers, friends and
relatives are informal sources of credit.
Advantages
1. No external control over the lending practices.
2. Suitable for poor households.
Disadvantages
1. The interest rates can be very high.
2. The lenders can use unfair means to get the money back.