Read the following passage and answer the questions based on the passage:
Microfinance institutions (MFIS) have become crucial agents for advancing financial inclusion in rural areas. Through extending small loans and savings accounts to people who don't have access to conventional banks, MFIs empower entrepreneurs-most often women-to initiate or scale up microenterprises. In most villages, these loans support poultry farming, handloom weaving, or tiny retailing outlets. MFIs go beyond credit by regularly offering financial education training, teaching borrowers to cope with cash flows and interest charges. Critics warn, however, that excessive interest rates and repayment pressure can result in over-indebtedness. To avoid such risks, some MFIs limit interest rates and spread repayment terms. Research indicates that when complemented by market linkages-such as guaranteed buyers for fruits and vegetables-microfinance can trigger sustainable economic growth and poverty reduction.
According to the author, sustainable impact occurs when microfinance is combined with:
- AOption (a)
High interest rates
- BOption (b)
Market linkage
- COption (c)
Shorter loan tenures
- DOption (d)
Government bailouts
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Correct answer
Market linkage
Why this answer is correct
The correct answer is Option 2.
Key Points
- Microfinance institutions (MFIs) provide small loans and financial education to underserved populations in rural areas.
- MFIs empower entrepreneurs, often women, to start or grow microenterprises such as poultry farming, handloom weaving, and retail outlets.
- Sustainable economic impact occurs when microfinance is combined with additional support mechanisms like market linkages, ensuring borrowers have guaranteed buyers for their products.
- Excessive interest rates or short loan tenures alone do not guarantee sustainable growth and may lead to over-indebtedness.
Therefore, the correct answer is Option 2.
Additional Information
- Option 1: High interest rates – (उच्च ब्याज दरें) Excessive rates can lead to over-indebtedness, not sustainable growth.
- Option 3: Shorter loan tenures – (छोटे ऋण अवधि) May increase repayment pressure without supporting long-term economic stability.
- Option 4: Government bailouts – (सरकारी सहायता) Not mentioned in the passage as a factor for sustainable microfinance impact.