Find the missing step in this chain:
Formal credit requires some kind of collateral → [ ? ] → Self-Help Groups emerge to fill the gap in the formal credit system.
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → A vast proportion of poor rural households is left out of the credit network
Formal credit asks for collateral, some asset given as security. Poor rural households have no such asset, so most of them are left out of the credit network. SHGs came up to fill this gap with credit from the members’ pooled savings.
Option (1) The Green Revolution shifts rural credit towards production-oriented lending — Incorrect. This was a real change, but it is about the purpose of lending. It does not follow from the need for collateral.
Option (2) Regional rural banks start lending to poor households without any security — Incorrect. Formal lenders such as RRBs still require some kind of collateral. That is why the poor stayed out of their credit network.
Option (3) A vast proportion of poor rural households is left out of the credit network — Correct. Without collateral, the poor cannot get formal credit, and this is the gap SHGs fill.
Option (4) NABARD takes over the lending work of cooperatives and regional rural banks — Incorrect. NABARD coordinates the rural financing institutions. It does not replace them.
NCERT (2026-27): “5.3 Credit and Marketing in Rural Areas … They are expected to dispense adequate credit at cheaper rates. Recently, Self-Help Groups (henceforth SHGs) have emerged to fill the gap in the formal credit system because the formal credit delivery mechanism has not only proven inadequate but has also not been fully integrated into the overall rural social and community development. Since some kind of collateral is required, vast proportion of poor rural households were automatically out of the credit network. The SHGs promote thrift in small proportions by a minimum contribution from each member. From the pooled money, credit is given to the needy members to be repayable in small instalments at reasonable interest rates. …” |