The Reserve Bank of India supervises the functioning of banks as follows
(i) The Reserve Bank of India checks that the banks actually maintain a minimum cash balance out of the deposits they receive (currently this is 15%).
(ii) The banks have to periodically submit information to the Reserve Bank of India on how much they are lending, to whom, at what interest rate, etc. Thus, the Reserve Bank of lndia ensures that the banks give loans not just to big businesses and traders, but also to small cultivators and borrowers.
This supervision is necessary to ensure that small businesses also grow. Further, this monitoring ensures that banks do not loan more money than they are supposed to, as such an action can create a crisis situation.

A number of borrowers have no collateral as security against loans, particularly small farmers and poor people.
A collateral is an asset that the borrower owns and keeps as a guarantee to the lender until the loan is repaid. Repayment of such a loan is crucially dependent on the income that a person may earn. Since there is a risk involved (in case the crop yield is inadequate for any reason), banks are not willing to lend to such borrowers who do not have collateral, which can be sold to recover the loan amount in case of default in paying the loan amount.

No, everyone in Sonpur Cannot get credit at a cheap rate. This is because, collateral is required for taking bank loan at cheap rate. Only those people, who can fulfill collateral and documentation requirements, get credit from bank at a much rate.

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.

A typical SHG usually comprises 15-20 members.

Banks use the major portion of their deposits to extend loans.

Besides banks, the small farmers borrow from landlords, moneylenders, traders, relatives and friends etc.

Interest rate, collateral, documentation requirements and the mode of repayment together comprise 'terms of credit'.

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 debt-trap is a situation when it becomes impossible to repay the loan and the borrower adds on a new debt to pay the existing debt.

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

It is accepted as a medium of exchange because it is authorised by the Government of India.

Gold, silver and copper coins were used for making coins in later stages in India.

Foodgrains and cattle were used as money before the introduction of coins in India.

One cannot refuse a payment made in rupees in India because it is authorised by the Indian government.

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

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.

A Self-Help Group is an innovative way to organise rural and urban poor, particularly women. The following points sum up the functioning of Self-Help Groups.
(a) Typically, a SHG has 15-20 members belonging to one neigbourhood. They meet and pool their savings regularly. Savings per member may vary as per the capacity of the member.
(b) The group advances loans to its members at a nominal interest rate without any collateral.
(c) Most of the important decisions regarding savings and loan activities are taken by the group members themselves. The group decides whether loan is to be granted or not, purpose, amount, interest to be charged, repayment schedule etc.
(d) It is the group that is responsible for the repayment of the loan. In case of non-repayment by any member, all the members seriously follow up the repayment.
(e) The regular meetings of the group provides a platform to discuss and act on a variety of social issues such as health, nutrition, domestic violence, etc.

 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).