The concept of credit creation is based on the following assumptions: Assumptions of Credit Creation
1. The banks, while granting loans, do not give the amount in cash, instead it credits the accounts of the customers with the amount of loan.
2. The customers do not withdraw the entire amount of loan.
3. While drawing the money from his account he uses cheque system.
4. The persons who are receiving the cheques against their claims from others also deposit the money into their respective banks.
5. The accounts are settled with mere book entries.