A newly formed SHG applies to a bank for a loan but is rejected. A bank manager explains that the group needs…

Question

A newly formed SHG applies to a bank for a loan but is rejected. A bank manager explains that the group needs to demonstrate certain creditworthiness before a loan can be sanctioned. What would the bank look for in the group's track record, and how does this criterion protect both the bank and the group's members?

Accepted Answer

## Model Answer The bank would examine whether the SHG has been **regular in savings** over a period of one to two years, as this demonstrates financial discipline and trustworthiness among members. **For the bank:** A consistent savings track record shows the group can manage money responsibly, reducing the risk of loan default. Since the loan is sanctioned in the group's name, collective responsibility ensures repayment. **For the members:** Group accountability means peer pressure prevents any single member from defaulting, protecting everyone's creditworthiness and access to future loans at reasonable interest rates. *Source: Chapter 3 — Money and Credit, Self-Help Groups for the Poor* --- ## Explanation Examiners expect you to identify the specific criterion (regular savings for 1–2 years) from the textbook and then explain the **dual protection** aspect — one point for the bank (reduced default risk) and one for the members (collective responsibility/peer monitoring). Avoid vagu…

Social Science (087) — AI-generated practice question