A rural woman belonging to a Self Help Group wants to take a small loan. She has no collateral to offer. Why…

Question

A rural woman belonging to a Self Help Group wants to take a small loan. She has no collateral to offer. Why would the SHG still be willing to lend her money, even though a bank in the same situation typically would not?

Accepted Answer

## Model Answer A bank requires collateral as security against a loan, and since the rural woman has none, the bank refuses to lend her. An SHG lends to her because: - The **group itself acts as collateral**. The loan is sanctioned in the group's name, and all members are collectively responsible for repayment. - If any member fails to repay, **other members follow it up seriously**, ensuring recovery without needing physical assets as security. - Members know each other personally, and **social pressure within the group** ensures timely repayment. Thus, the group's collective guarantee replaces the need for collateral, making it safe for the SHG to lend. *Source: Money and Credit, Chapter 3 — Self Help Groups for the Poor* --- ## Explanation Examiners look for three key ideas here: (1) why banks refuse — no collateral; (2) the SHG mechanism — group liability/collective responsibility replaces collateral; (3) peer pressure/social monitoring ensures repayment. Avoid vague phrases like…

Social Science (087) — AI-generated practice question