Microfinance Solved Question Paper 2024 [Gauhati University BCom 5th Semester]

In this post we have provided the Gauhati University BCom Microfinance Solved Question Paper 2024 of the Old CBCS Pattern. This paper is now very helpful for BCom 5th Semester students of  Finance Major/Specialisation because there's not a single change in the new syllabus under NEP FYUGP.

GU Microfinance Solved Paper 2024

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COM-HG-4026 (Microfinance)

2024

Full Marks: 80, Time: Three hours

The figures in the margin indicate full marks for the questions.

Short Answer Questions

1. Answer the following questions as directed (1×10=10):

(a) Identify the statement related to microfinance:
(i) Borrowers are low-income people.
(ii) Loan is extended without collateral.
(iii) It empowers poor women.
(iv) All of the above.
Answer: (iv) All of the above.

(b) "NBFC-MFI is a non-deposit taking institution." Is this statement true or false?
Answer: True.

(c) A self-help group means:
(i) A group of 10 to 20 people.
(ii) Regular savings habit.
(iii) Interlending within the group members.
(iv) All of the above.
Answer: (iv) All of the above.

(d) The microfinance movement in India was initiated by which institution?
(i) SBI
(ii) NABARD
(iii) RBI
(iv) SIDBI
Answer: (ii) NABARD.

(e) In which year was the SHG-Bank linkage program started in India?
(i) 1991
(ii) 1992
(iii) 1996
(iv) 1999
Answer: (ii) 1992.

(f) Which scheme was introduced by the Government of India for poverty alleviation?
(i) NRLM
(ii) MEDP
(iii) SHG Bank linkage program
(iv) LEDP
Answer: (i) NRLM.

(g) Name any two microfinance institutions operating in India.
Answer: Bandhan Bank and SKS Microfinance.

(h) Who initiated the concept of financial inclusion in India?
(i) NABARD
(ii) RBI
(iii) SIDBI
(iv) None of the above
Answer: (ii) RBI.

(i) "A microfinance institution is required to obtain a certificate of registration from the Reserve Bank of India for carrying on microfinance activities." Is this statement true or false?
Answer: True.

(j) The term of microcredit is:
(i) Short term
(ii) Long term
(iii) Medium term
(iv) All of the above
Answer: (i) Short term.

Short Answer Questions (50 words each)

2. Answer the following questions (2×5=10):

1. (a) Write the meaning of microfinance.
Answer: Microfinance means providing small loans and other financial services to poor and low-income people who do not have access to banks. It includes credit, savings, insurance, and financial education. The main purpose of microfinance is to reduce poverty, support small businesses, and empower poor households, especially women.

2. (b) Write two differences between microfinance and microcredit.
Answer: Microfinance is a broad concept that includes financial and non-financial services like loans, savings, training, and insurance for poor people. Microcredit is a part of microfinance, which only refers to providing small loans to low-income borrowers. Thus, microfinance is wider, while microcredit is limited to credit only.

3. (c) What is a self-help group?
Answer: A self-help group (SHG) is a voluntary group of usually 10–20 people, mostly women, who come together to save small amounts regularly. The members use these savings to give loans to each other at low interest. SHGs also link with banks to get financial support and improve livelihoods.

4. (d) Mention two non-financial services provided by microfinance institutions.
Answer: Microfinance institutions not only give loans but also provide important non-financial services. Two such services are: (i) financial literacy training, which teaches poor people how to manage money, and (ii) skill development programs, which help borrowers learn new skills for self-employment and income generation. These services increase long-term benefits.

5. (e) What is a MUDRA loan?
Answer: MUDRA loan is a financial scheme launched by the Government of India under the Pradhan Mantri Mudra Yojana in 2015. It provides loans up to ₹10 lakh to small businesses, shopkeepers, and entrepreneurs who are outside the formal banking system. The aim is to promote self-employment and small enterprises.

3. Answer any four questions in 150 Words (5×4=20):

(a) State the objectives of microfinance.
Answer: The main objectives of microfinance are:

1. Provide financial access – To give small loans, savings, and insurance to poor households who cannot reach banks.

2. Reduce poverty – By supporting small businesses and income-generating activities.

3. Women empowerment – To make women financially independent and self-reliant.

4. Promote self-employment – Helping people start or expand small-scale businesses.

5. Improve living standards – Raising the income and social condition of disadvantaged groups.

6. Encourage savings habit – Building financial discipline among members through regular saving.

7. Build mutual trust – By promoting group support and collective responsibility in self-help groups.

8. Financial inclusion – Bringing the weaker sections into the formal financial system.

9. Sustainable development – Ensuring long-term social and economic progress for poor communities.

(b) What are the common sources of funds for microfinance institutions?
Answer: The common sources of funds for microfinance institutions (MFIs) are:

1. Bank borrowings – Loans from commercial banks and financial institutions.

2. Apex institutions – Support from NABARD, SIDBI, and similar bodies.

3. Equity capital – Contributions by promoters and investors.

4. Donor agencies and grants – Funding from NGOs, government, and international organizations.

5. Subsidies – Government schemes that support rural development and poverty reduction.

6. Member deposits – Small savings collected from clients or group members.

7. Capital market instruments – Raising funds through bonds and debentures.

8. International funds – Borrowings from global microfinance funds and development agencies.

9. SHG-Bank linkage – Channelizing funds through self-help groups connected to banks.

(c) Explain how Pradhan Mantri Jan Dhan Yojana helps rural poor attain financial inclusion.
Answer: The Pradhan Mantri Jan Dhan Yojana (PMJDY), launched in 2014, is an important step towards financial inclusion in India. It provides rural poor people with zero-balance savings bank accounts, making banking facilities accessible to everyone. Under this scheme, account holders get a RuPay debit card, accidental insurance cover, and overdraft facility after maintaining the account for some time. The scheme also encourages people to save money formally instead of keeping cash at home. Direct Benefit Transfers (DBT) under various government schemes are routed through these accounts, ensuring transparency and reducing leakages. PMJDY also promotes financial literacy and awareness among rural people, helping them understand the use of banking services. By giving poor households access to credit, savings, insurance, and pension schemes, the program reduces dependence on moneylenders. Thus, PMJDY helps the rural poor to join the mainstream financial system and work towards economic stability.

(d) Why is regulation for microfinance and microfinance institutions necessary? Explain.
Answer: Regulation of microfinance and microfinance institutions (MFIs) is necessary to protect the interests of poor borrowers and ensure fair practices. Many borrowers are uneducated and vulnerable, making them prone to exploitation through high interest rates and unfair recovery practices. Proper regulation helps in setting interest rate limits, ensuring transparency in loan agreements, and protecting clients from over-indebtedness. Regulations also ensure that MFIs maintain financial discipline, follow ethical practices, and do not misuse funds. It brings accountability by requiring MFIs to register with regulatory bodies like the Reserve Bank of India. Additionally, regulation builds trust among borrowers, investors, and lenders, which is important for the sustainable growth of the sector. It also ensures that MFIs achieve their social mission of poverty reduction and women empowerment while maintaining financial stability. Without regulation, microfinance could lose credibility and fail to achieve its developmental objectives.

Long Essay Questions (600 words each)

4. Answer any four questions (10×4=40):

(a) Discuss the evolution of microfinance in India.
Answer: The concept of microfinance in India developed to provide financial services to the poor who were excluded from the formal banking system. Its evolution can be understood in different phases:

1. Pre-independence initiatives: Informal savings and credit groups existed in villages, but they were unorganized and often exploitative.

2. Post-independence rural credit institutions: After 1947, the government established cooperatives, regional rural banks (RRBs), and introduced Integrated Rural Development Programme (IRDP) in the 1970s to provide credit to the poor. However, these programs faced issues of inefficiency and loan defaults.

3. SHG-Bank linkage programme (1992): NABARD initiated the Self-Help Group (SHG) Bank linkage programme in 1992, which became a milestone in India’s microfinance movement. It allowed SHGs to access bank loans against their collective savings.

4. Growth of MFIs: From the late 1990s, Microfinance Institutions (MFIs) like SKS, Bandhan, and BASIX emerged to provide small loans without collateral. They professionalized microfinance and expanded outreach.

5. Policy support and financial inclusion: With the launch of financial inclusion programs and regulations by RBI, microfinance became part of the mainstream financial sector.

6. Recent developments: Government schemes like Pradhan Mantri Jan Dhan Yojana (2014) and MUDRA (2015) have strengthened microfinance by providing credit access to small entrepreneurs and rural households.

Thus, microfinance in India evolved from informal savings groups to a structured system involving SHGs, banks, and MFIs, focusing on poverty reduction and women empowerment.

(b) Explain the credit delivery mechanism for microcredit.
Answer:  The delivery of microcredit in India is done mainly through two approaches:

1. Self-Help Group (SHG) – Bank Linkage Programme:
   
   

1. Small groups of 10–20 members, mostly women, come together and save small amounts regularly.

2. After forming a savings base, SHGs get linked to banks.

3. Banks provide loans to SHGs based on their savings and repayment history.

4. Members use this credit for small businesses, farming, or household needs.

5. This model is promoted by NABARD and is the most widespread microcredit mechanism in India.

2. Microfinance Institutions (MFIs):
   
   

1. MFIs act as intermediaries between banks and poor borrowers.

2. They provide small collateral-free loans directly to individuals or joint liability groups (JLGs).

3. Funding sources of MFIs include commercial banks, donor agencies, and development institutions.

4. They also provide financial literacy and sometimes skill training.

Both models aim to deliver microcredit in a simple, accessible, and sustainable way. While SHGs focus on group responsibility and social development, MFIs provide quick and professional credit delivery. Together, they form the backbone of microcredit delivery in India.

(c) State the various problems of microfinance. Suggest measures to overcome these problems.
Answer:  Microfinance in India has played a key role in poverty reduction, but it faces several challenges.

Problems:

1. Over-indebtedness: Many borrowers take multiple loans from different MFIs, leading to repayment difficulties.

2. High interest rates: Despite being lower than moneylenders, MFI loans are often costly for poor borrowers.

3. Poor financial literacy: Many clients do not fully understand loan terms and repayment obligations.

4. Limited outreach: Remote rural and tribal areas still lack proper access to microfinance.

5. Recovery practices: In some cases, coercive methods are used for loan recovery, creating social issues.

6. Dependency problem: Instead of productive use, some borrowers use loans for consumption, reducing benefits.

Measures to overcome problems:

1. Strengthen regulation through RBI to ensure transparency and fair interest rates.

2. Promote financial literacy programs to educate borrowers on savings and credit use.

3. Encourage diversification of loans into productive activities like farming, small businesses, and enterprises.

4. Expand outreach in backward and tribal areas using technology and digital platforms.

5. Monitor MFIs to avoid multiple lending and over-borrowing.

6. Provide capacity building, skill development, and non-financial services along with loans.

Thus, microfinance can be made more effective by combining strong regulation, education, and sustainable lending practices to truly empower the poor.

(d) What are the various risks associated with microfinance institutions? State the risk management procedures of microfinance institutions.
Answer:  Microfinance institutions (MFIs) face several risks in their operations because they deal with poor and vulnerable borrowers.

Risks associated with MFIs:

1. Credit risk: Borrowers may default on loans due to low income or crop failure.

2. Liquidity risk: MFIs may face shortage of funds to meet loan demand.

3. Interest rate risk: Fluctuations in borrowing and lending rates affect profitability.

4. Operational risk: Weak management, poor record-keeping, or fraud can harm institutions.

5. Political and regulatory risk: Sudden government restrictions or political interventions can impact lending.

6. Reputation risk: Use of coercive recovery methods can damage the image of MFIs.

Risk management procedures:

1. Group lending method – Encouraging peer pressure and joint liability reduces defaults.

2. Credit appraisal and monitoring – Careful checking of borrower’s repayment capacity.

3. Diversification – Spreading loans across sectors and areas to reduce losses.

4. Proper reserves – Maintaining liquidity reserves for unexpected situations.

5. Technology use – Using MIS (Management Information Systems) for tracking loans.

6. Regulatory compliance – Following RBI and government guidelines strictly.

Thus, risk management is essential for the stability of MFIs and for protecting poor clients from financial stress.

(e) "NABARD has played a significant role in the promotion of microfinance in India." Discuss.
Answer: The National Bank for Agriculture and Rural Development (NABARD) has been the pioneer of the microfinance movement in India. Its role can be explained as follows:

1. Introduction of SHG-Bank Linkage Programme (1992): NABARD launched this programme to connect self-help groups with banks, making it the world’s largest microfinance initiative.

2. Capacity building: NABARD provides training and guidance to SHGs, NGOs, and banks involved in microfinance.

3. Refinance support: It offers refinancing facilities to banks for lending to SHGs and MFIs.

4. Policy support: NABARD works with the government and RBI to frame policies for sustainable microfinance growth.

5. Financial inclusion: By promoting SHGs and microfinance, NABARD has ensured access to credit in rural and backward areas.

6. Promotion of women empowerment: Most SHGs are women-led, and NABARD has empowered them through savings and income activities.

7. Monitoring and research: It undertakes studies, evaluations, and pilot projects to improve microfinance practices.

In conclusion, NABARD has been the backbone of microfinance in India, making affordable credit available to millions of rural poor and strengthening the link between financial institutions and grassroots organizations.

(f) Discuss the various laws governing microfinance activities in India.

Answer:  Microfinance in India is governed by a combination of laws and guidelines from different authorities to ensure transparency, borrower protection, and financial stability. The main laws and regulations are:

1. Reserve Bank of India (RBI) Regulations – RBI regulates NBFC-MFIs, sets rules on interest rates, lending limits, and borrower protection, and requires registration for legal operation.

2. NABARD Guidelines – NABARD promotes and regulates the SHG-Bank linkage programme, provides refinance support, and ensures SHGs follow proper norms.

3. Companies Act, 2013 – MFIs registered as companies must follow corporate governance and reporting requirements.

4. Cooperative Societies Act / State Cooperative Laws – Cooperative societies engaged in microfinance are governed by state cooperative regulations.

5. Societies Registration Act, 1860 / Indian Trust Act, 1882 – NGOs involved in microfinance are registered under these laws.

6. Microfinance Institutions (Development and Regulation) Bill, 2012 (proposed) – Intended to provide a uniform regulatory framework but has not been enacted.

Conclusion:  Together, these laws and regulations create a structured and accountable microfinance sector in India, ensuring that financial services reach the poor safely and efficiently.

Overall, microfinance activities are guided by RBI regulations for NBFC-MFIs, NABARD rules for SHGs, and general laws for cooperatives, societies, and NGOs. These laws together ensure transparency, borrower protection, and growth of the sector.

(g) "Microfinance is an effective tool for income generation and poverty alleviation." Discuss.
Answer:  Microfinance is considered one of the most effective tools for reducing poverty and generating income in developing countries like India. It provides small loans, savings facilities, and insurance services to poor households who are excluded from formal banking systems.

Microfinance helps in income generation by supporting small businesses, self-employment activities, farming, and other livelihood projects. Poor households use microcredit to start or expand petty shops, tailoring units, poultry farms, or agricultural activities. This increases their earnings and improves family living standards.

It also leads to poverty alleviation as borrowers can meet their basic needs, such as food, education, and healthcare. Microfinance institutions often focus on women borrowers, making them financially independent and socially empowered. When women earn, the benefits reach the entire family.

Moreover, microfinance develops savings habits, financial literacy, and collective responsibility through self-help groups (SHGs). This reduces dependence on moneylenders, who charge exploitative interest rates. Over time, borrowers gain confidence, create assets, and escape the poverty cycle.

Therefore, microfinance is not just a source of credit but a comprehensive tool for sustainable development, women empowerment, income generation, and long-term poverty reduction in rural and semi-urban areas.

(h) Discuss the various models of microfinance in India.

Answer:  Microfinance in India operates through different models to reach the poor and promote financial inclusion. The main models are:

1. Self-Help Group (SHG) – Bank Linkage Model – Initiated by NABARD in 1992, SHGs of 10–20 members save regularly and access loans from banks. This is the largest model and focuses mainly on women.

2. Joint Liability Group (JLG) Model – Small groups of 5–10 members borrow collectively, with all members responsible for repayment. This reduces the risk of default.

3. Grameen Model – Based on Bangladesh’s Grameen Bank, loans are provided to small groups with weekly repayment and emphasis on accountability.

4. Cooperative Model – Financial cooperatives and credit societies provide loans and savings facilities, mostly in rural and tribal areas.

5. NGO-MFI Model – NGOs act as intermediaries, mobilizing SHGs and linking them to banks or providing loans directly.

Conclusion:  Each model has its own strengths—SHGs promote savings and empowerment, JLGs ensure repayment discipline, and NGO-MFIs provide quick credit access. Together, these models form a strong framework for financial inclusion and poverty reduction in India.

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