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Analyse the Role of Credit for Development

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  • Last Updated : 08 Jan, 2023
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Credit is the trust that permits one party to lend money or resources to another, with the understanding that the second party will either repay or return the resources (or other goods of comparable value) at a later time, avoiding the creation of debt in the process. Credit is a technique for implementing mutuality, making it enforceable by law, and extending it to a considerable number of unrelated persons.

The resources offered may take the form of money (such as the granting of a loan), commodities, or services (e.g., consumer credit). Any kind of postponed payment is considered credit. Credit is given to a debtor, also known as a borrower, by a creditor, also known as a lender.

Importance of Credit for Development of Country

Credit is important for all three sectors of the Indian economy:

  1. Primary sectors include the collection and extraction of raw materials. For example, farmers come under the category of the primary sector.
  2. The secondary sector includes the manufacturing and processing of raw materials from the primary sector. For example, the manufacturing of automobiles falls under the category of the secondary sector.
  3. The tertiary sector includes the distribution, support, and commercialization of materials from both the primary and secondary sectors. For example, travel and banking have come under the category of the tertiary sector.

Role of Credit in Development

Cheap and affordable credit can help people fulfill their basic needs

If a person needs to buy a home on his own but can’t afford it, they can take out cheap and affordable credit to buy a home for themselves. By using this credit, anyone can fulfill their basic needs.

For example, in India, if a person wants to own a house, then there are some housing loans, private lenders, or relatives that lend some credit to that person at some rate of interest. According to the lender, the borrower can own his or her home and repay the credit in installments or as a one-time payment. 

Credit facilitates the establishment of new businesses of any size, small or large

If a person has a business idea and wants to start a new business, he can do so with the help of credit.

For example, in India, a person wants to start his business at a low scale, and for that he needs some financial help, and that help can be either a business loan or any other source that provides him with credit. This credit can be given to the borrower at a rate of interest, and the borrower has to pay back the credit in accordance with the lender by which they can establish the business at a low scale. Nonetheless, the government offers programs to help people start businesses. These schemes include financial help with a low rate of interest, through which a person can easily start a business. 

Credit helps farmers grow crops and buy machinery or any equipment that is necessary for farming

A farmer needs seeds, fertilizers, machinery, or any other equipment for farming that can be purchased using credit.

For example, in India, we are all aware that most of the population depends upon the agriculture sector. Some have financial resources, while others do not. Some farmers own land, machinery, and other farm-related equipment. But some farmers are there who have land but do not have any machinery, seeds, or fertilizers. Then these farmers need the credit to buy the seeds, fertilizers, machinery, and other equipment useful for farming. This credit can be given by banks or private lenders. There are also many schemes established for agriculture loans that provide farmers with credit at a low rate of interest. 

By taking out loans, credit allows businesses to earn more capital in the future

Sometimes in a business, a person needs financial help or something that can help stabilize their business or earn them more capital in the future, and this can be done through credit.
For example, in India, many stable businesses have crossed the valley of death. However, after a while, this company faces a financial crisis due to a lack of investors or for any other reason. This financial issue can be easily resolved with the help of credit. This credit can be taken from any source, including banks or private lenders. 

Credit helps in the development of social infrastructure

Building and maintaining buildings that support social services are considered social infrastructure. Healthcare, education, and housing are a few examples. For example, this credit can help in the construction of dispensaries and medical shops for the general public.

For example, people who have no money for their treatment need some sources that can provide them with free treatment. For this purpose, the government has established various hospitals and dispensaries in every area so that everyone can take advantage of free treatment.

We are all aware of the Swachh Bharat Abhiyan, the primary goal of which is to clean our surroundings. For this, our government has initiated various public toilets that help people clean their surroundings. 

Credit can help students pursue an education

If a student wishes to pursue studies but is unable to do so due to his family’s low income, the credit union can assist them by providing an educational loan through which the student can pursue studies.

For example, a student who is unable to pursue higher studies just because of his or her family’s income He or can easily continue his or her studies by obtaining loans from banks or other lenders. For providing credit for students, there are various banks, including SBI, HDFC, and others, that provide a loan at a low rate of interest so that a student can pursue higher studies.

FAQs on Role of Credit for Development

Question 1: What is Credit?


Credit permits one party to lend another party money or resources with the condition that the second party does not immediately pay the first party back but instead promises to pay back or return the resources later.

Question 2: What is the role of loans in the development of the country?


Bank loans helps in commerce. Manufacturers borrow from the banks the money which is required for purchase of raw materials and meet other important requirements such as working capital. It is safe to keep money in bank and also helps to earn interests.

Question 3: Describe the main uses of credit in the development.


The following are the primary uses of credit in development:

  1. for earning more capital in the future.
  2. for crop production
  3. for establishing new businesses.
  4. for pursuing education
  5. for constructing the social infrastructure.

Question 4: Describe the disadvantages of credit.


Credit Disadvantages:

  1. costly loan fees if not fully repaid by the due date.
  2. Annual fees for various types of credit can be expensive over time.
  3. The penalty fee for late payment.

Question 5: What is the role of credit in society?


Credit refers to the service for lending funds from the financial institutions to customers. The proceeds of loan are used to meet the community needs, such as buying goods, adding property or vehicle assets or for increasing the stock of goods.

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