Money acts as an intermediate in an exchange process while we acquire something, so it’s called a medium of exchange. Money can be used as an exchange in the process of a transaction Before money coins used to be there as an exchange, cattle and different grains were used as a medium of exchange in ancient India. 

1. Currency

• Modern forms of money are in the form of Notes and Coins. 
• Modern currency is not made of any precious metals like Gold, Silver, and copper.
• In India, the Reserve Bank of India issues currency notes on behalf of the government of India
• As per Indian law, no other individual or organization is supposed to produce the currency or distribute it.
• Law legalizes the use of the rupee as a medium of payment that cannot be refused in settling transactions in India.

2. Deposits with Banks

• The other form people use to store money is depositing in a bank, because people only need some amount to carry for daily requirement
• Workers who receive money doesn’t have to keep all of it with them for use, so they save it in the banks in an account with their name
• Bank accepts deposits and also gives interest on their deposits, so people’s money is safe and at the same time they can earn some interest
• Banks provide a provision of withdrawing their money whenever they want, deposits can be withdrawn on demand so they are called Demand Deposits
• The bank provides loans to the borrowers from the large portion of the deposits it receives, it charges higher interest rates on loans than it offers on deposits.
• The difference between what is charged to customers and what is paid to depositors is the main source of income
• Credit (loan) refers to an agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment

3. Terms of Loan

• Every loan agreement specifies an interest rate that the borrower must pay to the lender along with the repayment of the principal.
• In addition to this lenders might ask for something as collateral against loans.
• Collateral is an asset that the borrower owns (like land, vehicle, and house) and uses as a guarantee to a lender until the loan is repaid.
• If the borrower fails to repay the loan, the lender has the right to sell the asset or collateral to obtain payment.
• Terms of credit= interest rate + collateral + Documentation + mode of payment.
• Besides banks, there are other things which provide cheaper loans, those are called cooperative societies.
• Members of the cooperative society pool their money for cooperation in certain areas.

Different types of loans

Banks and cooperatives must increase their lending in rural areas, so that dependence on the informal sector will be reduced. 

4. Self-help Groups

• Banks are not present in all the places of rural India, even if they are present getting loans from the banks to the rural uneducated people is not so smooth with all the documentation and collateral. 
• Collateral absence is the main reason poor people not getting any loans. 
• So there is a new idea to help the poor get a loan.
• The idea is to organize the rural poor, in particular women, into a small Self Help Group (SHG). The people in the groups pool their money.
• General SHG will have 15 to 20 people; usually belonging to one neighbourhood, where they meet regularly.
• Savings vary from 25 rupees to 100 rupees depending upon their own capacity. Members can take small loans for their needs, the group charges interest on the loan but it will be less than a money lender. 
• Most of the important decisions regarding savings and loan activities are taken by the group members only. 

Advantages

• Self Help Groups help borrowers overcome the problem of lacking collateral
• They can get timely loans for a variety of purposes and at a reasonable interest rate
• SHGs are building blocks of rural household
• SHGs help women in need and also make them financially self-reliant
• It also provides a platform to discuss major issues like health, nutrition, domestic violence