Access to adequate and timely credit at affordable rates is critical for the rural poor to alleviate high cost debt and invest in livelihood opportunities. Despite the Government of India's best efforts, financial inclusion of the rural poor has been beset with multiple challenges. Lack of adequate banking infrastructure and human resources in rural areas, unplanned expansion leading to unviable bank branches and low levels of financial literacy amongst the rural populace have been some of the key challenges.
The most vulnerable communities, who often had no formal credit history or ability to provide collateral, have often been the worst affected. Inability to access loans from banks meant that the poorest had to resort to moneylenders for loans at unreasonably high rates of interest that invariably led them into a toxic debt trap.
In this context, the SHG-Bank Linkage programme, formalised by the National Bank for Agriculture and Rural Development (NABARD) in 1995, that synthesizes 'formal financial systems' (in terms of a formal institution providing credit) with the 'informal sector' (comprising of rural poor with no formal credit history), has emerged as a preferred vehicle for providing financial services to the hitherto unbanked poor.
Community Based Repayment Mechanisms (CBRMs) have been institutionalised at branches involved in financing SHGs to monitor and ensure timely repayment of loans by SHGs. The number of SHGs with outstanding bank loans stands at nearly 5 million today, implying that the program has brought formal banking services to over 50 million women.
(i) Why is it important to ensure access to cheap formal sector credit to the rural poor?
A. to create a culture of savings and investment
B. to increase the earnings of the regional rural banks
C. to protect them from predatory lending and debt traps
D. to promote collectivization and organisation among them
(ii) Which of the following is a crucial area of improvement for rural banking?
A. risk protection for small businesses
B. profitability of non-farm activities
C. a culture of deposit mobilisation
D. sustainable development
(iii) There are two statements given below, marked as Assertion (A) and Reason (R). Read the statements and choose the correct option.
Assertion (A): Micro-credit can help empower women and make them financially independent.
Reason (R): Micro-credit involves small loans provided at reasonable interest rates that can help people start their own ventures.
A. A is true but R is false.
B. A is false but R is true.
C. A and R are true and R explains A.
D. A and R are true and R does not explain A.
(iv) This programme would be successful if it can support a large number of people. What would the number of beneficiaries depend on?
A. community support among them
B. their level of average income
C. their level of financial literacy
D. a culture of saving money
(v) What could be the main reason for the institutionalisation of Community Based Repayment Mechanisms (CBRMs)?
A. Rural people should play an active role in the bank's day-to-day functions.
B. If repayment rate is low, banks would be reluctant to sanction fresh loans.
C. High number of default loans are a burden on the government budget.
D. Rural people deliberately refuse to pay back loans to banks.
(vi) Which of the following is likely to be the MAIN objective of this programme?
A. providing livelihood to women
B. financial literacy for rural people
C. building community-bank partnerships
D. enabling credit access for the rural poor