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September 30, 2013

Indian Money Market - Introduction and Characteristics


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Before going into details of Indian Money Market, lets have a brief look at the term Money Market.

Money Market - Meaning and Definition :

The term "Money Market" refers to institutional arrangements providing or facilitating, borrowing and lending of short term funds to business. This is a short term credit market with maturity ranging from overnight to one year which deals with relative liquid and quickly marketable assets such as bills of exchange, short term securities, banker's acceptances, treasury bills of exchange etc. In essence, we can say that the money market is a short term credit market.

The Reserve Bank of India defines money market as "Money market is a market for short term financial assets that are close substitutes for money, facilitates the exchange of money for new financial claims in the primary market as also for financial claims,h  already issued, in the secondary market".

According to Crowther "Money Market is a collective name given to the various forms and institutions that deal with the various grades of near money".

Characteristics of Indian Money Market :
Indian Money Market consists of two sectors. Those are 1. Organized and 2. Unorganized sectors. This dichotomy (division of two parts) of Indian Money market into organized and unorganized sectors itself a special characteristic of Indian Money market.
  1. Mixed Business of Money Lending and Trading : The Unorganized agencies of Indian Money market viz, indigenous bankers and money lenders conduct mixed business of money lending and trading.
  2. Informal Dealings : The dealings between the agencies of unorganized sector and the borrowers are informal in nature.
  3. Simple Accounting System : The indigenous bankers and money lenders of Indian Money market maintain their accounts in a very simple and indigenous form in the local language.
  4. Flexibility in Lending : The loan operation of agencies of unorganized sector of Indian money market are very flexible in nature without following rigid rules. In some cases they grant second loans without payment of first loan.
  5. Personal Contract with the Borrowers : Most of the business of unorganized agencies of Indian money market depends on personal contracts with the borrowers.
  6. Secrecy of Business : The dealing of unorganized sector or Indian Market are kept in secret. Kakar Gopal in his book, named "Unorganized Money Markets India" has commented regarding the working of unorganized sector of money market as follows. "It is in the method of working rather than in the nature of business that indigenous agencies like moneylenders and indigenous bankers stand in market contrast with modern institutions of the Indian money market".

 The effects of Dichotomy

As we stated earlier, the dichotomy of the Indian Money market into organized and unorganized sectors is a special characteristic. But it has certain adverse effects too on the working of the financial system in the country. 
  1. Check on Bank Habit : On account of widespread indigenous bankers and moneylenders with their informal methods of dealings in rural areas, banking habits among the rural people is normally discouraged.
  2. Minimization of Bank Credit : On account of the wide coverage of moneylenders and indigenous bankers in the countryside in catering to the credit needs of the rural economy, the use of bank credit has been minimized.
  3. Check on the Monetization Process : The unorganized sector of the money market is responsible for restricting the volume of monetary transactions and perpetuating non-monetized transactions which hinder the progress of monetization in the rural economy.
  4. Ineffective Tapping and Mobilization of Savings : On account of the existence of the unorganized sector, people in rural India are deprived of the attractive / remunerative saving schemes which could encourage their savings. Hence, rural savings potentials are not effectively mobilized for productive investment and capital formation.
  5. Perference for Cash Transactions : Indigenous bankers provide no cheque facilities. Thus, in rural areas, in the absence of adequate modern banking facilities, there has been a restricted use of cheque system. Hence, dealings in cash payments are always preferred to cheques in rural trade.
That's all for now friends. In our next lesson we shall discuss about the Structure, Problems and reforms of Indian Money Market. Happy Reading :)
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  2. daily current affairs pls,,,,,,,,,,,,,,,,

  3. Mam plz provide organizations and their hq and imp places in india,countries and capitals parliament names plz plz plzzzzz....thank in adv...


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