Social Science (087) — AI-generated practice question

(a) Why rural poor are excluded from formal credit:
Banks require proper documents and collateral as security for loans. The rural poor lack both, making it nearly impossible for them to access formal credit. As a result, they depend on informal lenders like moneylenders who charge very high interest rates (up to 60% per annum), keep no records, and often trap borrowers in a cycle of debt.

(b) How an SHG pools resources and provides loans:
A typical SHG has 15–20 members from one neighbourhood who meet and save regularly (₹25–₹100 per member). These savings are pooled, and members can take small loans from the group at interest rates lower than moneylenders. After one to two years of regular savings, the group becomes eligible for a bank loan sanctioned in the group's name. Members collectively decide the purpose, amount, interest rate, and repayment schedule. Group responsibility for repayment makes banks willing to lend even without individual collateral.

(c) Empowerment of women beyond credit:
SHGs make women financially self-reliant and provide a platform to discuss and act on social issues such as health, nutrition, and domestic violence, strengthening their voice in the community.

Source: Chapter 3, Self-Help Groups for the Poor

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• Examiners look for three clearly addressed parts — exclusion from formal credit, SHG mechanism, and social empowerment. Label them or use clear paragraphs.
• Key terms to include: collateral, pooling savings, group responsibility/liability, self-employment, social issues platform.
• Do not just list points vaguely — each part needs a brief explanation (not just a phrase).
• The empowerment point must go beyond finance (health, nutrition, domestic violence) to score fully.