Important Diagrams
3 min read

Money And Credit

- A simple way to visualize concepts through diagrams.
1
Loan activities of banks
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Explanation: Banks accepts deposits of the people and pays low interest on it. Then banks use their major portion of the deposits to extend loans. Banks charge higher rate of interest on the loans than what they offer on deposits. The difference in the interest rates what is charged from borrowers and what is paid to depositors is the bank's income or profit.
2
Credit sources in India
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Explanation: The two categories of sources of credit are formal sector credit or loans and informal sector credit or loans. The formal sector comprises banks and cooperative societies. The informal sector may consist of moneylenders, friends and relatives, traders, landowners, large farmers, etc. From this graph, we can see that the people in rural areas are mostly dependent on moneylenders, friends, etc. for informal sources of credit because they cannot afford formal sources of credit. For the development of a country, cheap and affordable credit is crucial. Therefore, the government should facilitate formal sources of credit in rural areas.
3
Examples of formal and informal loans taken by urban households
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Explanation: In the urban areas 85% of the loans taken by poor households are from the informal sectors, while only 15% are from formal sectors. In the other hand only 10% of the loan taken by rich urban households are from informal sectors, while 90% are from formal sectors. In the case of households with few assets and well-off households, the percentage of loans taken from formal sector are 47% and 72%, while the percentage of loans taken from informal sectors are 53% and 28% respectively.