TEACHGYAN • CLASS 10 ECONOMICS • NCERT 2026–27
Chapter 3 – Money and Credit
Complete concepts • barter • money • banks • credit • collateral • SHGs • numericals • case studies
1. Barter and the Double Coincidence of Wants
In barter, goods are exchanged directly for other goods. For an exchange to occur, each person must want what the other person has. This is called the double coincidence of wants.
Example: A farmer has wheat and wants shoes. A shoemaker has shoes but wants cloth. The farmer cannot directly complete the exchange unless their wants coincide.
2. Money as a Medium of Exchange
Money removes the need for a direct matching of wants. Currency is accepted as a medium of exchange, allowing people to sell goods for money and use that money later to buy other goods.
3. Modern Forms of Money
Currency and demand deposits are important forms of modern money. Bank deposits can be used for payments through cheques and other banking mechanisms.
4. How Banks Work
People deposit money in banks. Banks keep a portion to meet withdrawal needs and use deposits to provide loans. Interest paid to depositors and interest charged on loans form part of banking operations.
5. Credit: Loan and Terms
Credit means an arrangement in which a borrower receives money, goods or services now and agrees to repay later. Important terms include interest rate, collateral, documentation, duration and mode of repayment.
Collateral
Collateral is an asset that a borrower pledges as security against a loan. If the borrower fails to repay according to the agreement, the lender may have rights over the collateral under applicable rules.
6. Formal and Informal Credit
Formal credit comes through regulated institutions such as banks and cooperatives. Informal sources can include moneylenders, traders, employers, relatives and friends. The interest rate and conditions can vary significantly.
7. Why Cheap and Formal Credit Matters
Credit can help farmers, small producers and entrepreneurs invest in productive activities. But high interest or risky borrowing can create a debt burden. Expanding affordable formal credit can reduce dependence on expensive informal sources.
8. Self-Help Groups
Self-help groups encourage regular savings among members and can provide small loans. They can improve access to credit and strengthen collective financial decision-making.
🧮 Numerical Example
Principal = ₹50,000; simple annual interest = 10%; time = 2 years.
Total = ₹60,000
📊 Case Study
Borrower A takes a formal loan at 10% annual interest with documented repayment. Borrower B borrows the same amount from an informal source at 24% annual interest.
Tasks: Compare the annual interest. Explain why the total cost of credit depends on terms, not just the amount borrowed. Identify one risk of high-interest borrowing.
🧠 Competency Questions
- How does money solve double coincidence of wants?
- How do banks mediate between savers and borrowers?
- What are the main terms of credit?
- Why can credit have a positive or negative effect?
- Why should formal credit reach poorer households?
🔥 HOTS
- Why might a bank refuse a loan to a borrower?
- Why is collateral difficult for some poor borrowers?
- Why can a productive loan improve income while a high-cost loan can create debt stress?
✍️ Board Practice
- Explain double coincidence of wants.
- Explain the role of banks.
- Differentiate formal and informal credit.
- Explain collateral.
- Explain the importance of SHGs.
🎯 One-Minute Revision
Barter → double coincidence problem → money → banks → credit → terms of credit → formal/informal sources → SHGs.