Kamala, a landless labourer, needs a small loan to buy a goat. She has no land or other asset to offer as security. Which of the following is the most likely source of the loan for her?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Her village Self-Help Group, which gives credit to needy members from the money pooled by its members
Kamala has no collateral, so formal lenders leave her out. A Self-Help Group lends to its needy members from their pooled money, without asking for security.
Option (1) A commercial bank, as commercial banks are expected to dispense credit at cheaper rates — Incorrect. Banks are part of the formal system, which needs collateral.
Option (2) NABARD, as it is the apex body of the rural financing system — Incorrect. NABARD coordinates rural finance institutions. It does not lend to individuals like her.
Option (3) Her village Self-Help Group, which gives credit to needy members from the money pooled by its members — Correct. As a member, she can borrow from the pooled fund.
Option (4) A land development bank, as it is part of the multi-agency institutional structure — Incorrect. It is also a formal institution that needs security.
NCERT (2026-27): “5.3 Credit and Marketing in Rural Areas … 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. …” “… Later, the National Bank for Agriculture and Rural Development (NABARD) was set up in 1982 as an apex body to coordinate the activities of all institutions involved in the rural financing system. …” |