Money and Credit explains how money removes barter problems and how credit affects people differently.
These NCERT Solutions help students answer Chapter 3 questions on banks, RBI, SHGs, collateral and loans.
Money and Credit feels familiar because students see its examples around them every day. People pay shopkeepers, save money in banks, borrow for farming, use cheques, scan QR codes and repay loans in instalments. The chapter explains these daily actions through simple cases like the shoe manufacturer, Salim’s order, Swapna’s crop loss, Megha’s house loan and Rama’s debt. NCERT Solutions Class 10 Social Science Understanding Economic Development Chapter 3 help students answer all 13 textbook questions with clear points on money, banks, collateral, RBI, formal credit, informal credit and Self Help Groups for 2026-27 CBSE exams.
Key Takeaways
- Money: Money removes the need for double coincidence of wants in exchange.
- Demand deposits: Bank deposits withdrawable on demand are treated as modern money.
- Credit: Credit can increase income or push borrowers into a debt trap.
- Formal credit: Banks and cooperatives provide cheaper credit under RBI supervision.
NCERT Solutions Class 10 Social Science Understanding Economic Development Chapter 3 Structure 2026-27
| Textbook Section |
Main Focus |
Question Count |
| Exercises |
Money, banks, credit, RBI, SHGs and formal credit |
13 |
| Fill in the blanks |
Credit needs, borrowing cost, RBI, deposits and collateral |
5 |
| MCQs |
SHG decisions and formal sources of credit |
2 |
| Additional Project / Activity |
Urban occupations and loan needs |
1 table task |
Exercises
The NCERT exercise in Class 10 Social Science Economics Chapter 3 tests money, credit arrangements and institutional lending. These NCERT Solutions for Class 10 Economics Chapter 3 Money and Credit follow the textbook order.
1. In situations with high risks, credit might create further problems for the borrower. Explain.
Answer: Credit can create further problems when the borrower’s income is uncertain.
In the chapter, Swapna takes a loan for groundnut cultivation. Her crop fails because of pests.
She cannot repay the moneylender. The loan amount grows because interest keeps adding.
Next year, even a normal crop does not give enough income to repay the old loan.
Finally, she has to sell part of her land.
This shows how credit can push a borrower into a debt trap when risk is high.
2. How does money solve the problem of double coincidence of wants? Explain with an example of your own.
Answer: Money solves the problem of double coincidence of wants by working as a medium of exchange.
In barter, both people must want exactly what the other person offers.
For example, a tailor may want rice. A farmer may need shoes, not clothes.
So, the tailor cannot directly exchange clothes for rice with that farmer.
With money, the tailor can sell clothes for money.
Then the tailor can use that money to buy rice from any farmer.
Money removes the need for both sides to want each other’s goods at the same time.
3. How do banks mediate between those who have surplus money and those who need money?
Answer: Banks mediate by accepting deposits from people who have surplus money.
They keep a small part of deposits as cash for withdrawals.
In India, banks keep about 5 per cent of deposits as cash.
They use the major portion of deposits to give loans.
Borrowers use these loans for farming, business, houses, education or other needs.
Banks pay interest to depositors and charge higher interest from borrowers.
The difference between these two interest rates is a main source of bank income.
4. Look at a 10 rupee note. What is written on top? Can you explain this statement?
Answer: A 10 rupee note has “Reserve Bank of India” written on top.
This means the Reserve Bank of India issues currency notes on behalf of the central government.
In India, no other person or organisation can legally issue currency notes.
The rupee is accepted because it is authorised by the government.
No individual in India can legally refuse payment made in rupees.
That is why currency works as a widely accepted medium of exchange.
5. Why do we need to expand formal sources of credit in India?
Answer: Formal sources of credit need expansion because they provide cheaper and safer loans.
Formal sources include banks and cooperatives.
They are supervised by the Reserve Bank of India and follow rules.
Informal lenders like moneylenders, traders and employers often charge high interest.
High interest increases the debt burden of poor borrowers.
It can also push them into debt traps.
Expanding formal credit helps farmers, small industries, small borrowers and poor households get loans at reasonable rates.
Cheap and affordable credit is important for development.
6. What is the basic idea behind the SHGs for the poor? Explain in your own words.
Answer: The basic idea behind SHGs is to help poor people save and borrow together.
A Self Help Group usually has 15 to 20 members from one neighbourhood.
Members meet regularly and save small amounts, such as Rs 25 to Rs 100 or more.
The group gives small loans to members for different needs.
After one or two years of regular savings, the group becomes eligible for a bank loan.
The bank gives the loan in the group’s name.
SHGs help poor borrowers overcome the problem of collateral.
The group also helps women become financially self-reliant.
7. What are the reasons why the banks might not be willing to lend to certain borrowers?
Answer: Banks may refuse loans when borrowers cannot provide required documents or collateral.
Collateral is an asset used as security until the loan is repaid.
Poor borrowers often do not own land, buildings or bank deposits.
Banks may also worry about repayment if the borrower has irregular income.
Small farmers, landless workers and informal workers may not have salary records.
Banks need proof that the borrower can repay the loan.
This is why some borrowers depend on informal lenders despite higher interest rates.
8. In what ways does the Reserve Bank of India supervise the functioning of banks? Why is this necessary?
Answer: The Reserve Bank of India supervises banks in several ways.
It checks whether banks maintain a minimum cash balance from their deposits.
It also checks whether banks lend to small cultivators, small industries and small borrowers.
Banks must submit information to the RBI.
This includes how much they lend, to whom they lend and at what interest rate.
This supervision is necessary to keep the banking system safe.
It also prevents banks from lending only to profit-making businesses and traders.
RBI supervision helps ensure fairer credit distribution.
9. Analyse the role of credit for development.
Answer: Credit plays an important role in development when it is available at reasonable terms.
A farmer may need credit for seeds, fertilisers, pesticides and irrigation.
A small producer may need credit to buy raw material and pay workers.
In Salim’s case, credit helps him complete a large order and increase earnings.
So, credit can support production, income and employment.
However, credit can also harm borrowers if repayment becomes difficult.
Swapna’s crop failure pushes her into debt.
So, credit supports development only when it is affordable, timely and linked with fair repayment conditions.
10. Manav needs a loan to set up a small business. On what basis will Manav decide whether to borrow from the bank or the moneylender? Discuss.
Answer: Manav should compare the terms of credit before choosing the lender.
He should check the interest rate, repayment period, collateral and documentation.
A bank loan will usually have a lower interest rate.
It may also offer safer and clearer repayment terms.
However, the bank may ask for documents, business details and collateral.
A moneylender may give money faster and with fewer documents.
But the interest rate may be much higher.
If Manav can provide documents and collateral, he should prefer the bank.
If he borrows from a moneylender, the high interest may reduce his business income.
11. In India, about 80 per cent of farmers are small farmers, who need credit for cultivation.
(a) Why might banks be unwilling to lend to small farmers?
Answer: Banks may be unwilling because many small farmers cannot provide collateral.
Their income also depends on crops, monsoon, pests and market prices.
This makes repayment risky.
(b) What are the other sources from which the small farmers can borrow?
Answer: Small farmers can borrow from moneylenders, traders, employers, relatives and friends.
They can also borrow from cooperatives and Self Help Groups where available.
(c) Explain with an example how the terms of credit can be unfavourable for the small farmer.
Answer: Shyamal borrows from an agricultural trader at 3 per cent interest per month.
The trader also makes him promise to sell the crop to him.
After harvest, crop prices are low.
The trader buys the crop at a low price and earns profit later.
This makes the credit terms unfavourable for Shyamal.
(d) Suggest some ways by which small farmers can get cheap credit.
Answer: Banks and cooperatives should lend more to small farmers.
Self Help Groups can help farmers without collateral get loans.
Crop insurance can reduce risk.
Kisan Credit Cards can provide timely credit.
The government should make formal loans easier for small farmers.
12. Fill in the Blanks
(i) Majority of the credit needs of the _________________ households are met from informal sources.
Answer: Majority of the credit needs of the poor households are met from informal sources.
(ii) ___________________ costs of borrowing increase the debt-burden.
Answer: High costs of borrowing increase the debt-burden.
(iii) __________________ issues currency notes on behalf of the Central Government.
Answer: Reserve Bank of India issues currency notes on behalf of the Central Government.
(iv) Banks charge a higher interest rate on loans than what they offer on __________.
Answer: Banks charge a higher interest rate on loans than what they offer on deposits.
(v) _______________ is an asset that the borrower owns and uses as a guarantee until the loan is repaid to the lender.
Answer: Collateral is an asset that the borrower owns and uses as a guarantee until the loan is repaid.
13. Choose the Most Appropriate Answer
(i) In a SHG most of the decisions regarding savings and loan activities are taken by:
(a) Bank
(b) Members
(c) Non-government organisation
Answer: The correct answer is (b) Members.
In SHGs, members decide the loan amount, purpose, interest rate and repayment schedule.
(ii) Formal sources of credit does not include:
(a) Banks
(b) Cooperatives
(c) Employers
Answer: The correct answer is (c) Employers.
Employers are informal sources of credit. Banks and cooperatives are formal sources.
Additional Project / Activity
What are the purposes for which the following people might need loans?
| Occupation |
Reason for Needing a Loan |
| Construction worker |
Medical expenses, rent, food or children’s education |
| Graduate student who is computer literate |
Computer, course fees or job training |
| Person employed in government service |
House, vehicle or children’s education |
| Migrant labourer in Delhi |
Rent, travel, health expenses or family support |
| Household maid |
Daily expenses, illness or school fees |
| Small trader |
Stock purchase, shop rent or working capital |
| Autorickshaw driver |
Vehicle repair, fuel, permit or loan repayment |
| Worker whose factory has closed down |
Household expenses, job search or small business |
Who might get a bank loan and who might not?
People more likely to get a bank loan:
- Government employee
- Graduate student with documents
- Small trader with records
- Autorickshaw driver with vehicle papers
People less likely to get a bank loan:
- Construction worker
- Migrant labourer
- Household maid
- Worker whose factory has closed down
The main criterion is documentation, regular income and collateral.
Banks usually prefer borrowers who can prove repayment capacity.
Money and Credit Class 10 NCERT Solutions: Core Ideas From the Chapter
Money and Credit Class 10 NCERT Solutions become easier when students connect each concept with the chapter’s examples. The chapter moves from exchange to banking, then from loans to credit inequality.
Money as a Medium of Exchange
Money acts as an intermediate in transactions.
It allows people to sell goods for money and buy other goods later.
Double Coincidence of Wants
Double coincidence of wants means both parties must want exactly what the other offers.
Money removes this problem.
Modern Forms of Money
Modern money includes currency and demand deposits.
Currency is authorised by the government and issued by the RBI.
Demand Deposits
Demand deposits are bank deposits that can be withdrawn when needed.
They are considered money because cheque payments can be made from them.
Cheque Payments
A cheque instructs a bank to pay a specific amount from one account to another.
It allows transactions without cash.
Loan Activities of Banks
Banks accept deposits and give loans.
They mediate between depositors with surplus funds and borrowers who need funds.
Class 10 Economics Chapter 3 Money and Credit: Credit Sources and Risks
Class 10 Economics Chapter 3 Money and Credit shows that credit is useful only when repayment is possible. Salim and Swapna explain why the same loan system can help one person and harm another.
Salim’s Credit Situation
Salim takes credit to complete a large shoe order.
The loan helps him buy raw material, hire workers and earn profit.
Swapna’s Debt Trap
Swapna takes a crop loan from a moneylender.
When pests damage her crop, she cannot repay the loan.
Her debt grows, and she has to sell land.
Terms of Credit
Terms of credit include interest rate, collateral, documents and repayment mode.
Borrowers look for low interest, easy repayment and less collateral.
Collateral
Collateral is an asset pledged as security for a loan.
Land, livestock, buildings and bank deposits are common examples.
Formal Sources of Credit
Formal sources include banks and cooperatives.
They are supervised by the RBI and usually charge lower interest.
Informal Sources of Credit
Informal sources include moneylenders, traders, employers, relatives and friends.
They often charge higher interest and may use unfair recovery methods.
Self Help Groups
Self help groups class 10 economics answers should mention savings, group decisions and collateral-free loans.
SHGs help poor women borrow at reasonable rates and become financially self-reliant.
Formal and Informal Sources of Credit Class 10: Chapter Data and Examples
Formal and informal sources of credit class 10 questions often need chapter examples. These facts help students support answers with data and cases.
| Topic |
NCERT Detail |
Answer Use |
| Cash reserve |
Banks keep about 5% of deposits as cash |
Use in bank loan answers |
| Rural credit 2019 |
Commercial banks provided 51% of rural credit |
Use in formal credit answers |
| Moneylenders |
Moneylenders provided 23% of rural credit |
Use in informal credit answers |
| Cooperatives |
Cooperatives provided 10% of rural credit |
Use in cheap rural credit answers |
| Poor urban households |
54% loans from informal sources |
Use in credit inequality answers |
| Rich urban households |
83% loans from formal sources |
Use in formal credit access answers |
| SHG size |
A typical SHG has 15-20 members |
Use in SHG answers |
| Grameen Bank |
Over 9 million members in 2018 |
Use in poor borrowers answers |
Shyamal and Arun
Shyamal borrows from a trader at 3 per cent per month.
Arun gets a bank loan at 8.5 per cent per annum.
This shows how credit terms differ by borrower status.
Rama’s Dependence on Employer
Rama depends on her landowner-employer for loans.
She often takes a fresh loan before repaying the previous one.
This keeps her trapped in debt.
Cooperatives in Rural Areas
Cooperatives pool member resources.
They give loans for implements, cultivation, trade, housing and other needs.
RBI Supervision
The RBI monitors bank cash balance and lending patterns.
It ensures banks lend to small borrowers, cultivators and small industries.
Grameen Bank Example
Grameen Bank shows that poor women can be reliable borrowers.
It supports small income-generating activities through reasonable credit.
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