The three advantages of the SHGs for the poor are as follows.
(a) These groups help the rural poor, in particular women, to get organised to handle the money collected and sanction loans.
(b) These groups help the women to become financially self- reliant.
(c) These groups create self-employment opportunities for the members and thus save the poor from the clutches of the moneylenders.

The basic behind the SHGs is to provide a financial resource for the poor through organizing the rural poor especially women, into small Self Help Groups. They also provide timely loans at a responsible interest rate without collateral. Objectives of the SHGs:
  (a) To organize rural poor especially women into small Self Help Groups.
  (b) To collect savings of their members.
  (c) To provide loans without collateral.
  (d) To provide timely loans for a variety of purposes.
  (e) To provide loans at responsible rate of interest and easy terms.
  (f) Provide platform to discuss and act on a variety of social issues such education, health, nutrition, domestic violence etc.

Cheap and affordable credit plays a crucial role for the country's development. There is a huge demand for loans for various economic activities. The credit helps people to meet the ongoing expenses of production and thereby develop their business. Many people could then borrow for a variety of different needs. They could grow crops, do business, set up industries etc. In this way credit plays a vital role in the development of a country.

The Reserve Bank of India supervises the functions of banks in a number of ways:
(a) The commercial banks are required to hold part of their cash reserves with their RBI. RBI ensures that the banks maintain a minimum cash balance out of the deposits they receive.
(b) RBI observes that the banks give loans not just to profit making businesses and traders but also to small cultivators, small scale industries, small borrowers etc.
(c) The commercial banks have to submit information to the RBI on how much they are lending, to whom, at what interest rate etc. This is necessary to ensure equality in the economy of the country and protect especially small depositors, farmers, small scale industries, small borrowers etc. In this process RBI also acts as the lender of the last resort to the banks.

The diferences between formal sources and informal sources of credit are

Lenders ask for collateral while lending because if payment of interest and repayment of the principal are not made on time, the lenders can sell the collateral assest and recover their money.

If Salim continues to get orders from traders for the next six years, he can use the profits from the sales of shoes to finance his future business. Then he will not have to borrow money from any source of credit.

The use of money makes it easier to exchange things because
(i) it is accepted as a medium of exchange.
(ii) it serves as a unit of value.
(iii) it solves the problem of double coincidence of wants.

In a situation of crop failure, loan repayment becomes impossible, so it pushes a person into debt-trap.

They are Self-Help Groups formed by the poor rural women.

Collateral is an asset, such as land, vehicle, building, livestock and deposits with banks, that the borrower owns and uses this as a guarantee to a lender until the loan is repaid.

A cheque is an instrument instructing the bank to pay a specific amount from the person's account to the person in whose name the cheque has been issued.

A bank is a financial institution whose demand deposits are widely accepted as money for making payment and has the power to create money.

Money is anything which has common acceptability as a means of exchange, a measure and a store of value.

It is the system in which one type of goods or service is directly exchanged for another type of goods or service without the use of money.

 Banks and cooperatives can help people in obtaining cheap and affordable loans. This will help people to grow crops, do business, set up small- scale industries or trade in goods and also help indirectly in the country's development. They should do so, so that relatively poor people do not have to depend on informal sources of credit (money lenders).