By: Jay Parekh

The use of money spans a large part of oureveryday life. In transactions, goods arebeing bought and sold with use of money.

Money acts as an intermediate in theexchange process, it is also called a mediumof exchange. Money has become thecurrency of exchange.

Before introduction of money, peoplewould barter system to obtain the goods andservices they want.

If you have wheat but need fruits, you must findsomeone who not only has fruits but also thedesire for wheat. What if you find someone whohas the need for wheat but no fruits and can onlyoffer you flowers and banana?To get your wheat, he or she must find someonewho has fruits and wants flowers.

It is a system in which goods are exchanged for other goods.

•The other form in which people hold money is as deposits withbanks. At a point of time, people need only some currency fortheir day-to-day needs. Banks accept the deposits and also payan interest rate on the deposits. Since the deposits in thebank accounts can be withdrawn on demand, these deposits arecalled demand deposits.

•A cheque is a paper instructing the bank to pay a specificamount from the person’s account to person in whose namecheque has made. The modern form of money- currency anddeposits- are closely linked to the working of the modernbanking system.

DEPOSITORS BORROWERS

People makedeposits People take loans

People makewithdrawals andget interest

People repay loansWith interest

•Collateral security•Documentation required•Term of the loan•Mode of repayment•Rate of interest

Reserve Bank of India

•Poor people do not have anything to offer as collateral security

•Banks are not available in many rural areas

•Banks do not consider the poor people as credit worthy.

•Poor and ignorant people find it difficult to produce the needed documents.

Banks are not present everywhere in rural India. Eventhey are, getting a loan from bank is much moredifficult than taking a loan from the informalsources.

In recent years, people have tried out some new waysof providing loans to the poor. SHG is one of them. Atypical SHG has 15-20 members, usually belonging toone neighborhood, who meet and save regularly.