Self-Help Groups (SHGs) have emerged to fill the gap in the formal credit system as they __________ .
(Choose the correct option to fill in the blank)
Self-Help Groups (SHGs) have emerged to fill the gap in the formal credit system as they __________ .
(Choose the correct option to fill in the blank)
Show Hint
- Provide loan after obtaining suitable collateral
- Lend at a high rate of interest
- Promote thrift in larger proportions
- Generally provide collateral-free credit to their members
The Correct Option is D
Solution and Explanation
Banks and cooperatives often ask for collateral (land or other security) before they lend. Many poor and landless villagers have none, so they are shut out of formal credit.
A Self-Help Group (SHG) is a small group of 15 to 20 members who save together and lend to each other.
Step 2: Test each option:
(A) Provide loan after obtaining suitable collateral: this is what the formal system does, and it is the gap. SHGs do not do this.
(B) Lend at a high rate of interest: SHG loans are at a fair rate, much lower than that of moneylenders.
(C) Promote thrift in larger proportions: SHGs promote thrift in small amounts, as members save small sums regularly.
(D) Generally provide collateral-free credit to their members: the group trusts its members, so no security is asked. This fills the gap.
Final Answer:
SHGs fill the gap by giving collateral-free credit. Option (D).
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