chracteristics of credit 1. 2. 3. 4. 5. 6. 7. 8.

1, 2, 3, 4, 5, it is a bipartite contract the contract is personal in nature the contract has a pecuniary nature there is the presence of trust and confidence credit is risk futurity creation of legal obligation the transfer of ownership or title Credit as a Bipartite Contract Credit as a Pecuniary Contract Credit as a Fiduciary Contract In credit, risk is always involved Credit always involves futurity Anonymous

What Does Five Cs Of Credit Mean? A method used by lenders to determine the credit worthiness of potential borrowe rs. The system weighs five characteristics of the borrower, attempting to gauge the chance of default. The five Cs of credit are: -Character -Capacity -Capital -Collateral -Conditions Investopedia explains Five Cs Of Credit This method of evaluating a borrower incorporates both qualitative and quantitat ive measures. The first factor is character, which refers to a borrower's reputa tion. Capacity measures a borrower's ability to repay a loan by comparing income against recurring debts. The lender will consider any capital the borrower puts toward a potential investment, because a large contribution by the borrower wil l lessen the chance of default. Collateral, such as property or large assets, he lps to secure the loan. Finally, the conditions of the loan, such as the interes t rate and amount of principal, will influence the lender's desire to finance th e borrower.

Functions of Credit Credit is neither capital nor it creates capital. The credit instruments only re present money and facilitate the business. The importance of credit can be judge d by the following facts. 1-Large Scale Production: The less developing countries like Pakistan are facing capital storage problem. Our production sources are limited. So credit instruments have provided the mone y to the industrialists. No production is on large scale and cost per unit has b een reduced. The quality and quantity has been improved.

2-Increase in Saving Rate: Credit provides an opportunity to save the money, some people save the money but they are not capable to do any business. So they lend it to the financial insti tutions. 3-Shifting of Capital to Productive Lands: There are so many people who have surplus money but they are not capable to do a ny business. So they lend it to the financial institutions. Credit makes possibl e the shifting of money to those people who can use it for productivity. 4-Economy in the use of Metal: Credit instruments are used in place of metallic coins. So there is a saving of precious metals. Future use of Credit instruments is more effective and convenie nt. 5-Provision of Working Capital: Some times an industrialist faces the finance problem to purchase the raw materi al or for the payment of wages, so he avails the credit facility. 6-Sales of Bonds: Some times a firm can obtain credit by selling the bonds. If the firm prospects are bright it will repay the principal amount with interest. 7-Case of Young Firm: Credit enables the manager of a young firm to develop its resources at a rapid s peed. 8-Emergency of New Businessman: Credit makes possible the entrance of new talent in the business enterprise. If the person has all the qualities of a good entrepreneur but having no capital, C redit provides him the chance to utilise his qualities. Sajid Majeed

(1) Economy in the Use of Metal. Credit instruments are used as media of exchang e in place of metallic coins. There is thus a saving of precious metals. Moreove r, the use of credit instruments in all business transactions is more effective and convenient than any other form of money. (2) Provision of Working Capital. If an industrialist is short of spending power when the production is going on, he can finance the industry by obtaining credi t from the banks. He need not sell the plant or other fixed assets just for the purchase of raw material, paying wages to the labor, insurance charges, electric ity bill or other pressing emergencies. (3) Sales of Bonds. If the prospects of invested capital are bright and the prof its are being earned left and light, the firm can obtain possession of funds eve n by selling bonds. The firm can repay the interest as well as principal amount easily at the specified date out of profit earned during the course of productio n. (4) Case of Young Firm. Credit enables the entrepreneur of a young firm to devel op its resources at a rapid speed which otherwise would not have been possible. (5) Large Scale Production. The institutions of credit have provided a ready flo w of money to the industrialists. When the requirements of capital accumulation are met, the production is increased on large scale. The cost of production of c ommodities is reduced. The quality of product also improves with greater technol ogical research carried on in the big firms.

(6) Shifting of Capital to Productive Hands. There are people who have surplus m oney with themselves. Instead of keeping the money idle in their safe deposits, they lend it to the financial institutions. Credit thus makes possible the shift ing of money to those people who can use it productively. (7) Entrance of new Entrepreneurs. Credit makes possible the entrance of new tal ent in the business enterprise. If a person has less capital of his own but has all the qualities of a good entrepreneur, he can set up new firms and develop mo dern techniques of production and thus the resources of the country are effectiv ely utilized. (8) Purchase of Goods. Credit makes it easy and convenient to the consumers to p urchase or hire durable goods. A consumer can acquire flour, cloth, radio, telep hone, car, house, washing machines, etc., from the dealers with an obligations t o pay in future either by installments or in lump sum. The credit thus provides an opportunity to the consumers to use and enjoy more goods which otherwise woul d not have been possible if the payment is to be made in cash. (9) International Payments. International payments, especially through the bins of exchange, have been greatly facilitated. There is no need now to import or ex port gold for settlement of international business transactions. (10) State Revenue. If government expenditure is in excess of its current revenu e, it can meet the deficit by the sale of bonds. Thus the timely needs of the st ate are satisfactorily met through credit.

classifications of credit a) investment credit- capital are on credit first; more on buying properties (lo ts). b) agricultural credit- for farm improvement (usu. farmers only); loan for acqui sition of farm utilities. c) export credit- 4 parties: exporter, local bank, importer and local bank of th e importer; need capitalization; payment is only bank to bank. d) real estate credit- same with investment but limited to house and lots. e) industrial credit- for purposes of mining, fishing, factories (usu. businessm en); excludes farmers.