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Read the Given Passages and Answer the Question with the Help of the Information Provided in the Passage. Today, with a Noble Prize to Its Credit, Grameen is One of the Largest Microfinance - English Language

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MCQ

Read the given passages and answer the question with the help of the information provided in the passage.

Today, with a Noble Prize to its credit, Grameen is one of the largest microfinance organisations in the world. It started out lending small sums to poor entrepreneurs in Bangladesh to help them grow from a subsistence living to a livelihood. The great discovery its founders made was that even with few assets, these entrepreneurs repaid on time. Grameen and micro-finance have since become financial staples of the developing world. Grarneen's approach, unlike other micro-financers, uses the group-lending model. Costs are kept down by having borrowers vet one another, tying together their financial fates and eliminating expensive loan offices entirely. The ultimate promise of Grameen is to use business lending as a way for people to lift themselves out of poverty. Recently, Grameen has taken on a different challenge by setting up operations in the US Money may be tight in the waning recession but it is still a nation of 100000 bank branches. Globally, the working micro-finance equation consists of, borrowing funds cheaply and keeping loan defaults and overhead expenses sufficiently low. Microlenders, including Grarneen, do this by charging colossal interest rates-as high as 60% or 70% which is necessary to compensate for the risk and attract bank funding. 

But, loans at rates much above the standard 15% would most likely be attacked as usurious in America. So, the question is whether there is a role for a third world leader in the world's largest economy? Grameen America believes that in a few years it will be successful and turn a profit thanks to 9 million US households untouched by mainstream banks and 21 million using the likes of payday loans and pawn shops for financing. But enticing the unbanked won't be easy. Alter all, profit has long eluded micro-financiers and if it is not lucrative, it is not microlending, but charity. When Grameen first went to the US, in the late 1980s. it tripped up. Under Grameen's fuselage, banks started microloans to entrepreneurs with a shocking 30% loss. But, Grameen America says that this time results will be different because Grameen employees themselves will be making the loans, not training an American bank to do it. More often than not, the borrowers, Grameen finds, in the US already have jobs (as factory workers e.g.) or side businesses-selling toys. cleaning houses, etc. The loans from Grameen, by and large, provide a steadier source of funding, but they don't create businesses out of nothing. But, money isn't everything. More importantly, for many entrepreneurs, group members are tremendous sources of support to one another. So, even if studies are yet to determine if Grameen is a clear-cut pathway out of poverty it still achieves something useful.

What has adversely affected the success of microfinance institutions in the US?

Options

  • The focus of these institutions is on making a profit at any cost instead of being charitable to the needy

  • American banks engaged in micro-lending were the most severely hit during the recession

  • The widespread perception among bankers that these institutions are better suited to developing countries

  • Their failure to attract those outside the formal banking system as customers

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Solution

Their failure to attract those outside the formal banking system as customers

Concept: Comprehension Passages (Entrance Exams)
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