Money and Credit — Class 9 Social Science (Samacheer Kalvi)
TN State Board (Samacheer Kalvi) Class 9 Social Science, Economics — Chapter 3. Money, banking, and the credit system.
1. About this lesson
Money replaced the barter system. Credit (loans) helps people meet expenses and invest. This chapter covers the functions of money, the role of the RBI, formal and informal sources of credit, and how Self-Help Groups help the poor access credit.
2. Barter System
- Barter: Direct exchange of goods for goods.
- Problem: Double coincidence of wants — both parties must want each other's goods at the same time.
- Other problems: lack of common measure of value, indivisibility, difficulty storing value.
3. Evolution and Functions of Money
Evolution
Commodity money (cattle, grains) → Metallic coins (gold, silver) → Paper currency → Bank money → Digital money (UPI).
Functions of Money
| Function | Description |
|---|---|
| Medium of Exchange | Accepted as payment for goods and services |
| Measure of Value | Prices expressed in money |
| Store of Value | Can be saved for future use |
| Standard of Deferred Payment | Loans and future payments in money |
4. Reserve Bank of India (RBI)
- India's central bank (established 1935, nationalised 1949).
- Functions: Issues currency, banker to government and banks, regulates banks and NBFCs, controls credit (monetary policy), custodian of forex reserves.
5. Sources of Credit
| Type | Sources | Features |
|---|---|---|
| Formal | Commercial banks, cooperative banks, RRBs | RBI-regulated, lower interest, require collateral |
| Informal | Moneylenders, traders, relatives | Not regulated, high interest, may lead to debt trap |
Collateral
- Asset (land, gold, deposits) pledged as security for a loan.
- Lender can sell collateral if borrower defaults.
Terms of Credit
- Interest rate, collateral, documentation, mode of repayment.
6. Self-Help Groups (SHGs)
- Small groups (10–20 members, mostly women) pooling savings and lending to members.
- Linked to banks for larger loans.
- Benefits: No collateral needed, low interest, financial inclusion, women's empowerment.
7. Worked examples
Example 1. What is the main problem of barter? Double coincidence of wants.
Example 2. Who regulates formal credit in India? The RBI.
Example 3. What is collateral? An asset pledged as security for a loan.
8. Book-back questions (Samacheer Kalvi)
I. Choose the correct answer
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The main problem of the barter system is — (a) No money / (b) Double coincidence of wants / (c) No goods / (d) No trade. Ans: (b).
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The RBI was established in — (a) 1947 / (b) 1949 / (c) 1935 / (d) 1950. Ans: (c) 1935.
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Formal source of credit does NOT include — (a) Banks / (b) Cooperatives / (c) RRBs / (d) Moneylenders. Ans: (d).
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SHGs are primarily groups of — (a) Men / (b) Farmers / (c) Women / (d) Industrial workers. Ans: (c) Women.
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An asset pledged as security for a loan is called — (a) Interest / (b) Deposit / (c) Collateral / (d) Principal. Ans: (c).
II. Fill in the blanks
- Money is a medium of exchange.
- The RBI is India's central bank.
- Informal credit sources include moneylenders and traders.
- SHG stands for Self-Help Group.
- Collateral is an asset pledged to secure a loan.
III. Match the following
| Column A | Column B |
|---|---|
| Barter | Exchange of goods for goods |
| RBI | India's central bank |
| Collateral | Security for loan |
| Moneylender | Informal credit |
| SHG | Women's savings group |
IV. Answer briefly
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Barter system problems — Double coincidence of wants, no common measure, indivisibility, difficulty storing value.
-
Functions of money — Medium of exchange, measure of value, store of value, standard of deferred payment.
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Formal vs Informal credit — Formal: RBI-regulated banks/cooperatives, lower interest, collateral. Informal: moneylenders, high interest, no regulation, debt trap risk.
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What are SHGs? — Self-Help Groups: 10–20 members (mostly women) pooling savings, lending to members, linked to banks. Help poor access credit without collateral.
V. Answer in detail
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Explain the functions of RBI.
- Issues currency and regulates money supply.
- Banker to the government and to banks.
- Regulates commercial banks and NBFCs.
- Controls credit through monetary policy.
- Custodian of foreign exchange reserves.
-
Discuss the role of SHGs in rural credit.
- SHGs pool savings of 10–20 members (mostly women).
- Lend to members at low interest without collateral.
- Linked to banks for larger loans.
- Promote financial inclusion and women's empowerment.
- Reduce dependence on exploitative moneylenders.
9. Common mistakes
- Mistake: Barter system had no problems. Fix: Barter requires double coincidence of wants — both parties must want each other's goods.
- Mistake: Moneylenders are formal credit. Fix: Moneylenders are informal — not RBI-regulated, charge high interest.
- Mistake: SHGs are for men. Fix: SHGs are primarily for women.
10. Quick revision
- Economics Ch 3 · Money and Credit.
- Barter → Money (medium of exchange, store of value, measure, deferred payment).
- RBI (1935): central bank, regulates credit, issues currency.
- Formal credit: banks, cooperatives (RBI-regulated, lower interest).
- Informal credit: moneylenders, traders (high interest, debt trap).
- Collateral: asset pledged for loan security.
- SHGs: women's groups, savings + loans, financial inclusion.
