Directions (1-10): Read the following passage carefully and answer the
following questions given below it.
Today, with a Noble prize to its credit, Grameen is one of the largest
microfinance organisations in the world. It started out lending small sums to
poor entrepreneurs in Bangladesh to help them grow from a subsistence living to
a livelihood. The great discovery its founders made was that even with few
assets, these entrepreneurs repaid on time. Grameen and microfinance have since
become financial staples of the developing world. Grameen’s approach, unlike
other microfinanciers, uses the group-lending model. Costs are kept down by
having borrowers vet one another, typing together their financial fates and
eliminating expensive loan officers entirely. The ultimate promise of Grameen
is to use business lending as a way for people to lift themselves out of poverty.
Recently Grameen has taken on a different challenge – by setting
up operations in the US. Money may be tight in the waning recession, but it is
still a nation of 1,00,000 bank branches. Globally, the working microfinance
equation consists of borrowing funds cheaply and keeping loan defaults and
overhead expenses sufficiently low. Microlenders, including Grameen, do this by
charging colossal interest rates – as high as 60% or 70% - Which is necessary
to compensate for the risk and attract bank funding. But loans at rates much
above the standard 15% would most likely be attacked as usurious in America.
So, the question is whether there is a role for a Third World lender in
the world’s largest economy. Grameen America believes that in a few years it will
be successful and turn a profit, thanks to 9 million US households untouched by
mainstream banks and 21 million using the likes of payday loans and pawn ships
for financing. But enticing the unbanked won’t be easy. After all, profit has
long eluded US microfinanciers and if it is not lucrative, it is not
microlending, but charity. When Grameen first went to the US, in the late
1980s, it tripped up. Under Grameen’s tutelage, banks started microloans to
entrepreneurs with a shocking 30% loss. But Grameen America says that this time
results will be different because Grameen employees themselves will be making
the loans, not training an American bank to do it. More often than not, the
borrowers, Grameen finds, in the US already have jobs (as factory workers
for example) or side businesses – selling toys, cleaning houses etc. The loans
from Grameen, by and large, provides the steadier source of funding, but they
don't create businesses out of anything. But money isn’t everything. More
importantly for many entrepreneurs, group members are tremendous sources of
support to one another. So even if studies are yet to determine if Grameen is a
clear-cut pathway out of poverty, it still achieves something useful.
Q1. What has adversely affected the
success of microfinance institutions in the US?
(a) The focus of these institutions is on making a profit at any cost
instead of being charitable to the needy.
(b) American banks engaged in microlending were the most severely hit
during the recession.
(c) A widespread perception among bankers that these institutions are
better suited to developing countries.
(d) Their failure to attract those outside the formal banking system as
customers
(e) Americans are too proud to accept aid from Third World countries.
Q2. Why has Grameen made a second
attempt to launch itself in the US?
(a) The willingness of US banks to provide the necessary staff and funds
to facilitate the spread of microfinance
(b) The rates of interest on loans in the US are exorbitant, making it
easier to recover capital.
(c) The realization that a large percentage of the American population
not reached by mainstream banks can be trapped
(d) Recognition of the fact that disbursing credit in developing
countries during the recession is too risky.
(e) None of these
