Credit plays a vital and positive role in the following ways.
(a) It helps people from all walks of life in setting up their business, increase their income and provide support to their family needs.
(b) Credit makes it possible for the people to own or construct their own house and get relief from monthly rent.
(c) People often avail themselves of credit to purchase luxury items vehicles, A.Cs, etc., which further raises their standard of living.
(d) Credit enables us to invest in human resource. People take credit for education, training, etc. which allows enrichment of human resource.
(e) For example, Salim availed credit facility to meet the working capital needs of population. It helped him to meet the ongoing expenses of production, complete production on time, thereby, increasing his income.

 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).

Central Bank is the apex institution of monetary system of a country. It is banker to the other banks and to government. It issues notes, controls money supply and credit, and maintains monetary stability.
Functions of Central Banks:
(a) It has the sole monopoly of issuing currency.
(b) It acts as a banker to the government-both central and state governments. It carries out all banking business of the government.
(c) It puts as an agency to regulate and supervise the proper functioning of other banks in a country.
(d) It controls credit and money supply through its monetary policy like bank rate, CRR, etc.
(e) It is a lender of last resort for commercial banks.
(f) It maintains the external value of currency.
(g) It is the custodian of foreign exchange resources and nation's gold.
(h) It performs the clearing house function.
(i) It collects and compiles statistical information relating to banking and other financial sectors of the economy. 

(a) Banks provide loans after collateral and documentation securities, which generally the small farmers failed to comply with. Therefore, banks are unwilling to lend loans to small farmers.
(b) There are several informal sources of credit like landlords, moneylenders, traders, relatives and friends etc.
(c) Terms of informal credit can put the small farmers into debt-traps. Higher rate of interest and unfavourable conditions expiate farmers by the situation of multiple loans.
(d) Farmers can get cheap and safe loans from formal credit providers i.e., banks and cooperative societies.

The features of Self-Help Group (SHG) are:
(i) People form their personal groups for the purpose of savings and also lend money among themselves.
(ii) Rate of interest is lower than informal service providers.
(iii) They can also avail loans from banks if their savings are regular.
(iv) Decisions regarding the savings and loan activities are taken by group members.

Reserve Bank of India (RBI) supervised the banks in the following ways:
(i) It monitors the balance kept by banks for day-to-day transactions.
(ii) It checks that the banks give loans not just to profit-making businesses and traders but also to small borrowers.
(iii) Periodically banks have to give details about lending, borrowers and interest rate to RBI. It is necessary for securing public welfare. It avoids the bank to run the business with profit motive only. It also keeps a check on interest rate of credit facilities provided by bank. RBI makes sure that the loans from the banks are affordable and cheap.

Features of formal sources of credit are :
(a) Formal sources of credit are provided by banks and cooperative societies to the borrowers.
(b) Reserve Bank of India (RBI) governs the functioning of formal source of credit. RBI periodically checks the interest rate and other details of these sources.
(c) They follow proper terms of credit which includes collateral, documentation, rate of interest and mode of repayment.
(d) They provide cheap and affordable credits with common terms of credit for all. 
Features of informal sources of credit are :
(a) Informal sources of credit are moneylenders, traders, employers, relatives, friends etc.
(b) There is no government or private organisation that manages or check the credit activities performed by informal sources.
(c) Their terms of credit are flexible for the personal benefit of the lenders and condition of borrowers.
(d) They generally charge higher rates of interest and exploit the borrowers for their own benefits. 

Various sources of credit in rural areas are:
(i) Agricultural traders
(ii) Moneylenders
(iii) Commercial banks
(iv) Cooperative societies and 
(v) Relatives and friends.
The most convenient source of credit is a moneylender. It is most convenient because of the following two reasons: (i) There is no need of documentation process while taking loan from informal sources (moneylenders).
(ii) No collateral is required. Collateral is an asset that the borrower owns (such as land, building, livestock etc.) and uses this as a guarantee to the lender until the loan is repaid.

Money is accepted as a medium of exchange because the currency is authorized by the government of India. In money transactions, money can be paid for any goods or services one desires. For example: the producer of shoes may want wheat in exchange for his shoes. But he may find it difficult to find a person who is also willing to exchange his wheat for shoes. So simultaneous fulfilment of mutual wants is the first and foremost condition to buy and sell the commodity. In money transaction one can buy a commodity whenever one wants it. One does not have to wait for another person to agree to an exchange of goods.