Gauhati University Microfinance 2021 Question Paper Solution
2021(Held in 2022)
(MICROFINANCE)
Full Marks : 80
PAPER: COM-HG-4026
B.Com 4th Sem CBCS Pattern
Gauhati University
1. Answer as directed: 1×6=6
(a) In which year was the NABARD established?
Ans:The NABARD (National Bank for Agriculture and Rural Development) was established in 1982.
(b) The World Credit Summit was held at Washington in
i)1993
ii)1995
iii)1997
iv)1999
Ans: 1997
(c) In which year was the Reserve Bank of India established?
Ans: The Reserve Bank of India was established in 1935.
(d) Who is the founder of Micro Credit?
Ans: Muhammad Yunus is the founder of microcredit.
(e) Name two Microfinance Institutions in India.
Ans: Some examples of microfinance institutions in India are:
i).Grameen Financial Services Private Limited
ii).Bandhan Bank Limited
iii).Janalakshmi Financial Services Private Limited
(f) Bandhan Bank was established in the year of 2015.
(State whether true or false)
Ans: False.
N.B: Mr. Ghosh has over 30 years of experience in microfinance and development terrain. He founded Bandhan in 2001 as a not-for-profit enterprise for financial inclusion and women empowerment.
2. Answer the following: 2x5=10
(a) Define Microfinance.
Ans:Microfinance refers to the provision of financial services, including loans, savings, insurance, and other financial products, to individuals and small businesses that lack access to traditional banking services.
(b) What is Financial inclusion?
Ans:Financial inclusion refers to the availability and accessibility of financial services for all individuals and businesses, regardless of their income, location, or other factors. It aims to ensure that everyone has equal access to the financial tools and resources they need to manage their finances, save and invest for the future, and participate fully in the economy. Financial inclusion can be promoted through a variety of measures, including the expansion of financial literacy programs, the development of innovative financial products and services, and the use of technology to increase access to financial services.
(c) Mention two objectives of microfinance.
Ans: The main objectives of microfinance are:
To provide access to financial services for underserved populations, including those who are too poor or lack collateral to qualify for traditional bank loans.
To promote entrepreneurship and economic development by providing access to capital and other financial resources that can help small businesses grow and create jobs.
To increase financial inclusion and reduce poverty by enabling people to save, invest, and build a more secure financial future.
(d) What is Fund Management?
Ans:In the context of microfinance, fund management refers to the process of managing financial resources that are used to provide microfinance services, such as small loans, savings accounts, and insurance to low-income individuals or businesses.
(e) Write about a note on micro entrepreneurs.
Ans:Micro entrepreneurs are small business owners who operate businesses that have a relatively small number of employees and generate relatively low levels of revenue. These businesses are often referred to as micro enterprises, and they are typically owned and operated by a single individual or a small group of individuals.
Micro entrepreneurs are an important part of the economy in many developing countries, as they often provide much-needed goods and services to underserved communities and contribute to economic development. They may be involved in a variety of industries, including retail, food service, manufacturing, and tourism.
One of the main challenges facing micro entrepreneurs is access to capital, as they may not have the collateral or credit history required to secure traditional loans from banks or other financial institutions. As a result, micro entrepreneurs may rely on microfinance institutions or other sources of financing to start and grow their businesses.
In addition to financial challenges, micro entrepreneurs may also face other barriers to success, such as a lack of business skills and knowledge, limited access to markets, and weak infrastructure. Microfinance institutions and other organizations often provide support services, such as business training and market access, to help micro entrepreneurs overcome these challenges.
3. Answer any four of the following questions : [ about 250 words cach ] 6×4=24
(a) Distinguish between Microfinance and Micro-Credit.
Ans: Distinguish between Microfinance and Micro-Credit:-
Microfinance refers to a range of financial services, while micro-credit refers specifically to small loans.
Microfinance institutions provide a variety of financial products and services, while micro-credit is usually provided by banks or credit unions.
The goal of microfinance is to provide financial inclusion and support economic development, while the goal of micro-credit is to provide access to credit.
Microfinance may involve group lending, while micro-credit may be provided to individuals or businesses on a more individual basis.
Microfinance may include business training and other support services, while micro-credit is focused solely on providing small loans.
Microfinance is often targeted at low-income individuals or businesses, while micro-credit may also be available to individuals or businesses with a higher income but limited access to traditional credit.
(b) Briefly state the structure of Micro finance Institutions.
Ans:The structure of microfinance institutions (MFIs) can vary depending on the specific model that they follow. Some MFIs may be organized as non-profit organizations, while others may be structured as for-profit businesses. MFIs may also be affiliated with larger financial institutions or operate as independent entities. In general, MFIs are typically organized into three main levels: the client level, the field officer level, and the management level. At the client level, MFIs work directly with individuals or businesses to provide financial services, such as loans, savings, and insurance. Field officers are responsible for interacting with clients and providing support
(c) Discuss the objectives of NABARD.
Ans:The National Bank for Agriculture and Rural Development (NABARD) is a development finance institution in India that is focused on promoting sustainable and inclusive growth in the agriculture and rural sector. Some of the main objectives of NABARD are:
To provide credit for the promotion and development of agriculture, small-scale industries, cottage and village industries, handicrafts and other rural crafts.
To provide refinance to commercial banks, co-operative banks, and regional rural banks for their lending to the agriculture and rural sectors.
To promote and develop rural non-farm sector activities, including micro and small enterprises, by providing financial and non-financial support.
To promote the development of institutional infrastructure in rural areas, including credit institutions, marketing infrastructure, and other support systems.
To act as a regulator and supervisor of co-operative banks and regional rural banks, and to provide support for their development and strengthening.
To carry out research and development activities related to agriculture and rural development, and to disseminate the results of these activities to stakeholders.
To facilitate the flow of credit to priority sectors, such as small and marginal farmers, women, and other disadvantaged groups.
To promote financial inclusion and literacy, and to provide support for the development of appropriate financial products and services for underserved populations.
(d) What are the main limitations of the format source of finance?
Ans: There are several limitations to the formal source of finance, which refers to financial resources that are provided by traditional financial institutions, such as banks, insurance companies, and other regulated financial service providers. Some of the main limitations of formal sources of finance include:
Accessibility: Formal sources of finance may not be readily available or accessible to all individuals or businesses, particularly those that are located in remote or underserved areas, or those that lack collateral or credit history.
Affordability: Formal sources of finance may be more expensive than other options, due to higher interest rates and other fees that may be associated with borrowing. This can make it difficult for some borrowers to afford the costs of borrowing, especially if they have limited income or are already struggling financially.
Complexity: The process of applying for and obtaining formal sources of finance can be complex, requiring extensive documentation and documentation, which can be a burden for some borrowers.
Strict eligibility requirements: Formal sources of finance may have strict eligibility requirements that limit access to certain individuals or businesses. For example, some banks may only lend to businesses that have a certain level of creditworthiness or collateral, which can exclude many small businesses or startups.
Limited flexibility: Formal sources of finance may have inflexible repayment terms or other restrictions that can be difficult for some borrowers to meet.
Lack of personalized support: Formal sources of finance may not offer the same level of personalized support or assistance as other options, such as microfinance institutions or community-based lenders. This can make it more difficult for some borrowers to get the support they need to succeed.
Microfinance Question paper Solution 2021
(e) Explain the benefit of microfinance products.
Ans: Microfinance refers to financial services, including loans, savings, and insurance, that are provided to individuals or small businesses with low incomes, often in developing countries. Microfinance products can be an important tool for addressing poverty and promoting economic development in these areas.
One of the main benefits of microfinance products is that they can provide access to financial resources to individuals and small businesses who may not have access to traditional banking services. This can be especially important in areas where there is a lack of formal financial institutions, or where such institutions are not accessible or affordable for low-income individuals.
Microfinance products can also help to promote economic development by providing people with the means to start or expand small businesses. By providing access to capital, microfinance products can help individuals to invest in their businesses and increase their income-earning potential. This can in turn stimulate economic growth in the local community and contribute to overall economic development.
In addition to economic benefits, microfinance products can also have social and cultural benefits. For example, they can help to empower women and other marginalized groups by providing them with access to financial resources and the opportunity to become self-sufficient. Microfinance products can also help to promote financial literacy and build financial skills, which can be important for long-term financial stability and success.
Overall, microfinance products can be a valuable tool for addressing poverty, promoting economic development, and empowering marginalized groups. While they are not a panacea and can have challenges and limitations, they can play a important role in supporting the financial well-being and prosperity of low-income individuals and small businesses.
(f) How microfinance contributes towards creation of micro enterprise?
Ans: Microfinance plays a crucial role in promoting the growth and development of micro enterprises, which are small businesses that employ a small number of workers and have a relatively small turnover. Micro enterprises are a vital source of income and employment in many developing countries, particularly in rural areas, and they can help to alleviate poverty and promote economic development.
Microfinance can contribute to the creation of micro enterprises in several ways:
Access to credit: Microfinance institutions (MFIs) provide small loans to entrepreneurs who may not have access to traditional forms of finance. This can help them to start or expand a micro enterprise, enabling them to purchase equipment, hire workers, and invest in their business.
Training and technical assistance: Many MFIs also provide training and technical assistance to micro entrepreneurs, helping them to develop the skills and knowledge needed to run a successful business. This can include training in financial management, marketing, and business planning.
Financial inclusion: Microfinance can also help to promote financial inclusion, by providing financial services to underserved and low-income communities that may not have access to traditional banking services. This can enable micro entrepreneurs to access the financial tools and resources they need to succeed.
Overall, microfinance plays a crucial role in enabling micro entrepreneurs to start and grow their businesses, and in doing so, it helps to create employment and drive economic development in underserved communities.
Also Read: GU 6th Sem (Gen.) Microfinance Question paper 2023
4. Answer any four of the following questions: (in about 600 words each) 10x4=40
(a) Discuss briefly the evolution and growth of microfinance in India.
Ans: The concept of microfinance, which refers to the provision of financial services to underserved and low-income communities, has a long history in India. In the past, informal systems of credit and finance, such as moneylenders and informal rotating savings and credit associations, played a crucial role in meeting the financial needs of these communities.
In the 1970s and 1980s, several non-governmental organizations (NGOs) in India began to experiment with microfinance as a means of poverty alleviation. These early initiatives focused on providing small loans to women in rural areas, and often used the group lending model, in which a group of borrowers jointly guarantee each other's loans.
In the 1990s, the microfinance sector in India began to grow and evolve, with the emergence of both non-profit and for-profit microfinance institutions (MFIs). The government of India also played a role in promoting microfinance, with the establishment of the National Bank for Agriculture and Rural Development (NABARD) in 1982 and the creation of a separate department for microfinance within NABARD in 1992.
In the 2000s, microfinance in India received a major boost with the passage of the Microfinance Institutions (Development and Regulation) Act in 2006, which provided a legal framework for the sector and recognized microfinance as a separate asset class. This led to the rapid expansion of the microfinance sector in India, with the number of MFIs increasing from just a few hundred in the early 2000s to over 1,500 by 2010.
Today, microfinance in India plays a crucial role in providing financial services to underserved and low-income communities, particularly in rural areas. It has become an important source of credit and savings for millions of people, helping to alleviate poverty and promote economic development.
(b) Write a critical note on various legal form of Microfinance Institutions. Which one you consider to be more efficient in providing the services and why?
Ans:Microfinance institutions (MFIs) play a crucial role in providing financial services to underserved and low-income communities, particularly in developing countries. There are various legal forms that MFIs can take, each with its own benefits and limitations.
Non-profit organizations: MFIs that are organized as non-profit organizations are typically focused on social impact rather than profit. They may be funded through donations, grants, or subsidies, and may offer lower interest rates on loans to clients. However, they may have limited access to capital and may struggle to sustain their operations over the long term without a steady stream of funding.
For-profit companies: MFIs that are organized as for-profit companies are primarily focused on generating profits for their shareholders. They may have greater access to capital, but may also charge higher interest rates on loans to clients. This can make them less accessible to low-income communities, and may create a burden for borrowers who struggle to repay their loans.
Cooperatives: MFIs that are organized as cooperatives are owned and controlled by their members, who are typically also their clients. This model can help ensure that the MFI is responsive to the needs of its members and is accountable to them. However, cooperatives may struggle to attract outside investment and may have limited access to capital.
Government-owned institutions: MFIs that are owned and operated by the government can provide financial services to underserved communities, particularly in rural areas. However, they may be subject to political interference and may not always operate in a transparent manner.
In conclusion, each legal form of MFI has its own strengths and limitations, and the most efficient form will depend on the specific context and needs of the community being served. It may be helpful to consider a variety of factors, such as the MFI's access to capital, its focus on social impact versus profit, and its accountability and transparency, when determining which legal form is most appropriate.
(c) Describe the role of NABARD in Microfinance.
Ans:National Bank for Agriculture and Rural Development (NABARD) is a development bank in India that plays a crucial role in the microfinance sector. Some of the key roles of NABARD in microfinance are:
Providing financial assistance: NABARD provides financial assistance to microfinance institutions (MFIs) through various schemes, such as the Rural Financial Institutions Development Fund (RFIDF) and the Micro Finance Development Fund (MFDF). This helps MFIs to expand their operations and reach more clients.
Promoting microfinance: NABARD promotes microfinance through various initiatives, such as capacity building programs for MFIs, awareness campaigns, and research and development activities.
Regulating microfinance: NABARD plays a regulatory role in the microfinance sector, setting guidelines and standards for MFIs to follow. It also carries out inspections and audits to ensure compliance with these guidelines.
Providing technical assistance: NABARD provides technical assistance to MFIs, helping them to improve their operations and financial management.
Overall, NABARD plays a crucial role in promoting and supporting the growth and development of the microfinance sector in India, enabling MFIs to provide financial services to underserved and low-income communities.
(d)Discuss various types of Risk in Micro finance Institutions.
Ans: There are several types of risk that microfinance institutions (MFIs) may face, including:
Credit risk: This refers to the risk that a borrower will default on a loan. MFIs may face credit risk if they lend to borrowers who are unable to repay their loans, either because of financial difficulties or because of external factors such as natural disasters or economic downturns.
Liquidity risk: This refers to the risk that an MFI will not have sufficient funds available to meet its short-term obligations, such as loan repayments or other financial commitments.
Market risk: This refers to the risk that the value of an MFI's assets or liabilities will decline due to changes in market conditions, such as changes in interest rates or exchange rates.
Operational risk: This refers to the risk of losses resulting from inadequate or failed internal processes, systems, or human errors.
Reputation risk: This refers to the risk that negative publicity or a loss of trust in an MFI will damage its reputation and negatively impact its business.
Political risk: This refers to the risk of losses resulting from changes in government policies or political instability in the country where the MFI operates.
MFIs may also face other types of risk, such as regulatory risk (the risk of changes in regulatory requirements) and exchange rate risk (the risk of losses due to changes in exchange rates). Managing these various types of risk is an important part of running a successful microfinance institution.
(e) "The microfinance movement and transition economies in developing countries like India is bound to fail and only bank can provide a lasting solution in the problem of financial exclusion in those countries".Do you agree or disagree with the above comment? Explain as to why banks may not necessarily address the needs of the poor. Also highlight the features of microfinance that suits the need of the poor.
Ans: I disagree with the statement that the microfinance movement and transition economies in developing countries like India are bound to fail and that only banks can provide a lasting solution to the problem of financial exclusion in those countries. While banks can certainly play a role in addressing financial exclusion, they are not the only solution and may not always be the most effective option for serving the needs of the poor.
There are several reasons why banks may not necessarily address the needs of the poor in developing countries. First, banks often require collateral or other forms of security in order to lend money, which may be difficult for poor individuals or small businesses to provide. This can make it difficult for them to access credit from banks, even if they have a good credit history and are creditworthy.
Second, banks may not have a physical presence in some of the poorer or more remote areas of a country, making it difficult for people in these areas to access banking services. This is where microfinance institutions (MFIs) can play a valuable role, as they are often able to reach underserved or financially excluded communities that banks may not be able to serve.
There are several features of microfinance that make it well-suited to the needs of the poor in developing countries. One important feature is that microfinance institutions often lend small amounts of money, typically to poor individuals or small businesses, who may not have the collateral or security required by banks. This allows people who would otherwise not have access to credit to borrow money and start or grow their businesses.
Another important feature of microfinance is that it often involves group lending, where a group of individuals or small businesses come together to borrow money and are held collectively responsible for repaying the loan. This can help to reduce the risk of default and make it easier for poor individuals or small businesses to access credit.
Overall, while banks can certainly play a role in addressing financial exclusion in developing countries, microfinance can also be an effective way of serving the needs of the poor and providing access to financial services in underserved or financially excluded communities.
(f) Briefly describe The Microfinance Institutions (Development and Regulation Bill, 2012).
Ans: The Microfinance Institutions (Development and Regulation) Bill, 2012 (also known as the MFI Bill) is a piece of legislation in India that aims to provide a regulatory framework for microfinance institutions (MFIs) operating in the country. The MFI Bill was introduced in the Parliament of India in 2012, and it was intended to provide a legal framework for the regulation and development of the microfinance sector in India.
The MFI Bill defines microfinance as the provision of financial services, including loans, savings, insurance, and payment services, to low-income households and microenterprises in a sustainable and responsible manner. It also sets out the regulatory and supervisory framework for MFIs in India, including provisions related to licensing, registration, capital adequacy, and transparency.
The MFI Bill also establishes the Microfinance Institutions Network (MFIN), a self-regulatory organization that is responsible for promoting industry best practices and standards among MFIs in India. The MFIN is required to develop and implement codes of conduct, guidelines, and standards for MFIs, and it is also responsible for facilitating the exchange of information and knowledge among MFIs.
Overall, the MFI Bill aims to promote the sustainable development of the microfinance sector in India and to ensure that MFIs are able to provide financial services to low-income households and micro-enterprises in a responsible and transparent manner.
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