CBSE Class 10 Social Science Economics Revision Notes Chapter 3 Money and Credit 2026–27

Money acts as a medium of exchange and removes the need for direct exchange of goods. CBSE Class 10 Economics Chapter 3 explains currency, demand deposits, banks, credit, collateral, formal loans and Self-Help Groups.

Money and Credit explains how people buy goods, make payments, borrow money and repay loans. The chapter connects everyday transactions with the banking system and shows why credit can help one borrower but push another into debt.

Use these CBSE Class 10 Social Science Economics Revision Notes Chapter 3 for the 2026–27 academic year to revise money as a medium of exchange, double coincidence of wants, modern money, demand deposits, cheque payments, loan activities of banks, terms of credit, formal and informal sources of credit and SHGs.

Key Takeaways

• Money: Money is accepted as a medium of exchange in buying and selling.
• Demand deposits: Bank deposits that can be withdrawn on demand are also treated as money.
• Credit: Credit can increase income when used productively, but it can create a debt trap in risky situations.
• Formal credit: Loans from banks and cooperatives are supervised and usually cheaper than informal loans.

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CBSE Class 10 Social Science Economics Revision Notes Chapter 3 on Money and Credit

Money is used in most daily transactions. People use money to buy goods, pay for services, receive wages, save income and repay loans.

In this chapter, students learn why money is accepted, how banks work with deposits, how loans are given and why credit should be available at reasonable rates.

Money and credit are linked with production, trade, farming, business and household needs.

Important Topics in CBSE Class 10 Economics Chapter 3 Notes

Class 10 Economics Chapter 3 Notes focus on how money and credit work in a modern economy.

The chapter is best understood through examples. Salim’s case shows how credit can support production. Swapna’s case shows how credit can become risky when income fails.

Money and Credit Class 10 Notes: Money as a Medium of Exchange

Money is called a medium of exchange because it acts as an intermediate in the process of buying and selling.

Suppose a shoe manufacturer wants wheat. Without money, he must find a farmer who has wheat and also wants shoes. This is difficult. With money, the shoe manufacturer can sell shoes for money and then use that money to buy wheat.

Money makes exchange easier because the buyer and seller do not need to want each other’s goods directly.

Why Money Is Accepted in Transactions

Money is accepted because people know they can use it again to buy other goods and services. A shopkeeper accepts money for goods because the same money can be used to pay suppliers, workers or rent.

Money solves three basic problems:

• It removes the need to find a matching buyer and seller.
• It gives a common way to measure value.
• It allows people to make payments now or later.

Barter System and Double Coincidence of Wants in Economics Class 10 Chapter 3 Notes

The barter system is a system where goods are directly exchanged for goods without using money.

For barter to work, both people must want exactly what the other person has. This is called double coincidence of wants.

In a money economy, double coincidence of wants is not needed. A person can sell goods for money and then use that money to buy anything else.

Modern Forms of Money in CBSE Class 10 Economics Chapter 3 Notes

Modern forms of money include currency and demand deposits. They are not valuable because of the material used to make them. They are accepted because they are authorised and trusted.

Currency in Money and Credit Class 10 Notes

Currency includes paper notes and coins. In India, currency notes are issued by the Reserve Bank of India on behalf of the central government.

No person or organisation is allowed to issue currency. The rupee is legally accepted as a medium of payment in India.

Modern currency is different from old forms of money such as grains, cattle, gold, silver and copper coins. It may not have value of its own, but it has legal acceptance.

Demand Deposits in Class 10 Social Science Economics Chapter 3 Money and Credit

People keep extra money in bank accounts. Banks accept deposits and pay interest on them. These deposits can be withdrawn when needed.

Deposits that can be withdrawn on demand are called demand deposits.

Demand deposits are considered money because they can be used for payment. People can make payments through cheques, debit cards, online transfers and other banking methods linked to deposits.

Cheque Payments in CBSE Class 10 Social Science Economics Revision Notes Chapter 3

A cheque is a paper instruction to the bank. It tells the bank to pay a specific amount from one person’s account to another person.

For example, if a shoe manufacturer has to pay a leather supplier, he can write a cheque. The leather supplier deposits the cheque in his bank account. The money is transferred from one bank account to another without cash being used.

Cheque payment flow:

Payer writes cheque → Payee deposits cheque → Bank verifies details → Money moves from payer’s account to payee’s account → Payment is complete

This shows why demand deposits are part of money in the modern economy.

Loan Activities of Banks in Money and Credit Class 10 Notes

Banks receive deposits from people. They do not keep all deposits as cash. They keep only a small part to meet daily withdrawals and use the major part to give loans.

Banks work between two groups:

• Depositors who have surplus money
• Borrowers who need money

Banks pay interest to depositors. They charge higher interest from borrowers. The difference between the interest charged on loans and the interest paid on deposits is an important source of income for banks.

How Banks Use Deposits

Banks keep some cash ready because depositors may withdraw money. Since all depositors do not withdraw money on the same day, banks can use most deposits for lending.

A farmer may borrow for seeds and fertilisers. A businessperson may borrow for raw materials. A family may borrow to buy a house. Banks use deposits to meet these loan needs.

Credit in Economics Class 10 Chapter 3 Notes

Credit means an agreement where the lender gives money, goods or services to the borrower in return for future repayment.

Credit is used for many purposes. Farmers borrow for crop production. Business owners borrow for working capital. Households borrow for housing, illness, education or functions.

Credit can be helpful or harmful. Its effect depends on income, risk, interest rate and repayment conditions.

Two Credit Situations in Class 10 Social Science Economics Chapter 3 Money and Credit

NCERT explains credit through two different situations: Salim and Swapna.

Salim’s Credit Situation

Salim is a shoe manufacturer. He receives a large order during the festival season. To complete the order, he needs leather, workers and other inputs.

He gets credit from two sources. The leather supplier gives leather now and accepts payment later. A trader gives an advance payment for part of the order.

Salim completes production, earns profit and repays the borrowed amount. Here, credit helps production and increases income.

Swapna’s Credit Situation

Swapna is a small farmer. She takes a loan from a moneylender for groundnut cultivation. Her crop is hit by pests and fails.

She cannot repay the loan. The debt grows, and she takes a fresh loan the next year. Even after a normal crop, her income is not enough to clear the old debt. She has to sell part of her land.

Here, credit pushes her into a debt trap.

The same credit can be useful in one situation and harmful in another. Risk and repayment ability decide the outcome.

Debt Trap in Money and Credit Class 10 Notes

A debt trap is a situation where a borrower is unable to repay the loan and must take more loans or sell assets to repay old debt.

This often happens when:

• Income fails due to crop failure or business loss.
• Interest rate is very high.
• The borrower has no savings or support.
• Repayment conditions are harsh.
• The borrower depends on informal lenders.

Debt trap reduces the borrower’s income and assets. It can make the borrower worse off than before taking the loan.

Terms of Credit in CBSE Class 10 Economics Chapter 3 Notes

Every loan has conditions. These conditions are called terms of credit.

The terms of credit include:

• Interest rate
• Collateral
• Documentation
• Mode of repayment

Borrowers prefer easy terms of credit. This means low interest rate, simple repayment conditions, less collateral and fewer documents.

Collateral in Economics Class 10 Chapter 3 Notes

Collateral is an asset that the borrower owns and gives as security to the lender until the loan is repaid.

Examples of collateral include land, building, vehicle, livestock and bank deposits.

If the borrower fails to repay the loan, the lender can sell the collateral to recover the money.

Banks often ask for collateral before giving loans. This creates a problem for poor borrowers because many of them do not own assets that can be used as collateral.

Formal Sources of Credit in Money and Credit Class 10 Notes

Formal sources of credit include banks and cooperatives. These sources are supervised and follow rules.

The Reserve Bank of India supervises the functioning of banks. It checks whether banks maintain required cash balance and whether they lend to different groups such as small cultivators, small-scale industries and small borrowers.

Formal credit is important because it usually offers lower interest rates than informal credit.

Examples of formal credit:

• Commercial banks
• Cooperative societies
• Cooperative banks

Formal loans help people borrow for farming, business, housing and other productive needs at reasonable rates.

Informal Sources of Credit in CBSE Class 10 Social Science Economics Revision Notes Chapter 3

Informal sources of credit include moneylenders, traders, employers, relatives and friends.

Informal lenders are not supervised in the same way as banks. They may charge high interest rates. They may also use unfair methods to recover money.

Poor households often depend on informal credit because they may not have proper documents or collateral for bank loans.

Formal and Informal Credit Difference

Cheap and affordable credit is important for development. It helps people invest, produce, trade and improve income.

Why Formal Credit Should Expand in India

Formal credit needs to expand because many poor households still depend on informal loans. Informal loans often carry high interest rates and can reduce the borrower’s income.

When banks and cooperatives lend more, people can borrow at lower interest rates. Farmers can buy seeds, fertilisers and equipment. Small businesses can buy raw materials. Workers can start small income-generating activities.

Formal credit should also reach poor households, not only rich borrowers. Equal access to formal credit supports development.

Self-Help Groups in Class 10 Economics Chapter 3 Notes

Self-Help Groups, or SHGs, are small groups of people who save together and provide loans to members. They are especially useful for poor rural households and women.

A typical SHG has 15 to 20 members. Members meet regularly and save small amounts. The group uses these savings to give small loans to members.

After the group saves regularly for some time, it can become eligible for bank loans. The loan is given in the name of the group.

How SHGs Help Poor Borrowers

SHGs help borrowers in several ways. They reduce dependence on moneylenders. They give loans without demanding collateral like banks. They also allow members to decide loan amount, purpose, interest and repayment schedule.

SHGs help women become financially self-reliant. Their meetings also give members a platform to discuss health, nutrition, domestic violence and other social issues.

SHG process flow:

Members save regularly → Group fund is created → Members take small loans → Group decides repayment → Regular group savings continue → Bank loan becomes possible

Grameen Bank Example in Money and Credit Class 10 Notes

The Grameen Bank of Bangladesh is an example of credit reaching poor borrowers. It began as a small project and later became known for giving loans to poor women.

The idea behind such credit systems is simple. If poor borrowers get loans at reasonable terms, they can run small activities, earn income and repay responsibly.

This example shows that credit can support development when loan terms are suitable for the borrower.

Important Terms in CBSE Class 10 Social Science Economics Revision Notes Chapter 3

Important Points of Money and Credit Class 10 Notes

• Money makes exchange easier by removing the need for double coincidence of wants.
• Modern money includes currency and demand deposits with banks.
• The Reserve Bank of India issues currency notes on behalf of the central government.
• Demand deposits can be used for payments through cheques and other banking methods.
• Banks keep only a small part of deposits as cash and lend the major part.
• Credit can help production, trade and income when repayment is possible.
• Credit can create debt trap when income fails or interest rates are high.
• Terms of credit include interest rate, collateral, documents and repayment mode.
• Formal credit is supervised and usually cheaper.
• Informal credit often charges high interest and may exploit borrowers.
• SHGs help poor borrowers access loans without collateral.