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SAI International School
                                                 Session- 2025-2026

                                                   Lesson notes-6
                                    Subject- Economics Ch- 3- MONEY AND CREDIT





                 Sources of Credit: Rural households in India obtain loans from both

                  formal and informal sources.
                 Formal Sector Loans: Include loans from banks and cooperatives,

                  supervised by the Reserve Bank of India (RBI).

                 Banks required to maintain a minimum cash balance.

                 RBI monitors lending activities to ensure inclusion of small borrowers

                  and fair interest rates.
                 Informal Sector Loans: Provided by moneylenders, traders, employers,

                  relatives, and friends.

                 No regulatory oversight; lenders can charge any interest rate. Typically,

                  higher interest rates compared to formal sector loans.
                 Cost to Borrowers: Informal loans incur significantly higher costs,

                  reducing borrowers' disposable income.

                 High interest rates may lead to debt traps and discourage

                  entrepreneurial activities.

                 Importance of Formal Lending: Encourages economic growth by
                  providing cheaper credit. Enables agricultural expansion, business

                  development, and industrial growth.
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