Podcast
Questions and Answers
What is a debt trap?
What is a debt trap?
A debt trap is a situation where a loan is difficult or impossible to repay, mainly due to high interest.
Which of the following are terms of credit?
Which of the following are terms of credit?
- Method of payment (correct)
- Rate of interest (correct)
- Duration of credit (correct)
- Collateral (correct)
- All of the above (correct)
Collateral is a guarantee given by the lender to the borrower.
Collateral is a guarantee given by the lender to the borrower.
False (B)
What does the lender have the right to do if the borrower fails to repay a loan?
What does the lender have the right to do if the borrower fails to repay a loan?
What are the advantages of formal lending?
What are the advantages of formal lending?
The informal sector is well regulated and provides lower interest rates.
The informal sector is well regulated and provides lower interest rates.
What does the Reserve Bank of India supervise to ensure fairness?
What does the Reserve Bank of India supervise to ensure fairness?
The informal sector can lend at whatever interest rate they choose.
The informal sector can lend at whatever interest rate they choose.
What is the drawback of informal lenders?
What is the drawback of informal lenders?
What are the important benefits of self-help groups (SHGs)?
What are the important benefits of self-help groups (SHGs)?
SHGs have more than 100 members.
SHGs have more than 100 members.
What happens if a SHG member fails to repay a loan?
What happens if a SHG member fails to repay a loan?
What are some of the key reasons for the growth of formal sources of credit in India?
What are some of the key reasons for the growth of formal sources of credit in India?
What are some of the reasons why banks and cooperative societies should lend more in India?
What are some of the reasons why banks and cooperative societies should lend more in India?
Flashcards
Formal Sector Loans
Formal Sector Loans
Loans provided by banks and cooperatives, supervised by the RBI.
Informal Sector Lending
Informal Sector Lending
Loans from individuals (moneylenders, etc.), with no central oversight.
Terms of Credit
Terms of Credit
Conditions of a loan, including repayment, interest, duration, and other specifics.
Collateral
Collateral
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Debt Trap
Debt Trap
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Self-Help Groups (SHGs)
Self-Help Groups (SHGs)
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Currency
Currency
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Bank Deposits
Bank Deposits
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Cheque
Cheque
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Modern Banking System
Modern Banking System
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Credit
Credit
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Study Notes
Debt Trap
- Debt trap is a situation in which a loan is difficult or impossible to repay, it is mainly caused due to high interest.
Terms of Credit
- Terms of credit is a set of conditions under which a loan is given. It may include method of payment, rate of interest, duration of credit and other related conditions.
- Collateral (security) is an asset. But the borrower owns such as land, vehicle etc and uses this as a guarantee to a lender until the loan is repaid.
- If the borrower fails to repay the loan, the lender has the right to sell the asset or collateral to recover the loan.
Credit sources in India
- Formal sector
- loans from banks and cooperatives
- RBI supervises the functioning of formal sources of loans.
- RBI says that the banks give loans not just to profit-making business and traders but also to small cultivators, small-scale industry to small borrowers etc.
- Banks periodically submit information to the RBI on how much they are lending, to whom, at what interest rate, etc.
- Informal sector
- The informal lenders include money-lenders, traders, employers, relatives
- There is no organization which supervises the credit activities of lenders in the informal sector.
- They can lend at whatever interest rate they choose.
- The cost to the borrower of informal loans is much higher as no record of the transactions is kept and poor one housed.
- There is no one to stop them from unfair means to get their money back.
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