Indian Economy · Topic 5 of 20
Elementary ideas of money, credit and informal/formal finance before studying banking
The Basics
Money is anything people widely accept in exchange for goods and services. It works as a medium of exchange, a store of value, and a measure of value. It also has the backing of the government, making it legal tender.
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Modern money has two basic forms: currency and deposit money. Currency is the notes and coins we hold. Deposit money is money kept in bank accounts, moved by cheque or digital transfer. Currency is physical. Deposit money exists only as bank records.
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A cryptocurrency is digital money that exists only as computer code. It has no paper notes or coins. It is also called a virtual currency. No central bank issues or backs it. Bitcoin is the best known example.
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A commercial bank takes money from the public. It then lends this money to others. This is a bank's most basic job. People with spare money keep it in a bank. They earn some return. People who need money borrow from the bank. They pay interest on the loan.
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Credit means a lender gives money now. The borrower promises to repay later, with interest.
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Credit comes from two kinds of sources: formal and informal.
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Rural credit means loans taken by farmers and village households.
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A Self-Help Group, usually written as SHG, is a small group of poor people, often women. Members save money regularly and lend it to each other.
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The Grameen Bank model gives small loans to poor people without collateral.
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