Money and Credit — Questions & Answers

Sample questions from Money and Credit

1. Q1. Who founded the internationally acclaimed Grameen Bank of Bangladesh in the 1970s, which received the Nobel Peace Prize in 2006?

   • A.Amartya Sen
   • B.Muhammad Yunus✓
   • C.Mahbub ul Haq
   • D.Kanshi Ram
   Solution

   B is correct because the textbook specifically profiles: 'Grameen Bank of Bangladesh is one of the biggest success stories in reaching the poor... Started in the 1970s as a small project, Grameen Bank in 2018 has over 9 million members in about 81,600 villages across Bangladesh... Professor Muhammad Yunus, the founder of Grameen Bank and recipient of 2006 Nobel Prize for Peace.' Mistake A is an Indian Nobel laureate economist. Mistake D was the founder of BSP. Mistake C was a Pakistani economist who developed HDI.

2. Q2. Which of the following sources of credit belongs to the 'Formal Sector' in India?

   • A.Cooperative societies and commercial banks✓
   • B.Village agricultural moneylenders
   • C.Traders providing raw material on credit
   • D.Employers and relatives
   Solution

   A is correct because the textbook groups loans into: 'formal sector loans' which are loans from banks and cooperatives. And 'informal sector loans' which include moneylenders, traders, employers, relatives, and friends. Mistakes B, C, and D are all informal credit sources.

3. Q3. Why do informal agricultural traders who advance seeds and fertilizers to small farmers demand that the farmers sell their harvested crop exclusively to them?

   • A.Because commercial banks refuse to allow farmers to sell grain in village markets.
   • B.Because the Indian Constitution requires all grain to be sold to private traders.
   • C.To prevent farmers from consuming their own grain.
   • D.To ensure that the loan is repaid promptly, and to buy the crop at an artificially low price from the farmer to resell it at a profit later.✓
   Solution

   D is correct because the textbook explains the trader's credit condition: 'The trader provides the farm inputs on credit on the condition that the farmer will sell the crop to him. This way the trader can ensure that the money is repaid promptly. Also, since the crop prices are low after the harvest, the trader is able to make a profit from buying the crop at a low price from the farmers and then selling it later when the price has risen.' Mistakes B, C, and A are false.

4. Q4. What remarkable micro-finance reality did the Grameen Bank of Bangladesh demonstrate regarding poor women borrowers?

   • A.That micro-loans should only be extended to commercial real-estate developers.
   • B.That poor women default on 99 per cent of micro-loans unless subsidized by foreign governments.
   • C.That poor women are highly reliable borrowers and can successfully start and manage a variety of profitable small income-generating micro-enterprises.✓
   • D.That rural banking operations can function with zero computer networks.
   Solution

   C is correct because Muhammad Yunus's quote in the textbook asserts: 'if credit can be made available to the poor people on terms and conditions that are appropriate and reasonable these millions of small people with their millions of small pursuits can add up to create the biggest development wonder.' Grameen Bank proved that poor women are dependable borrowers. Mistakes B, A, and D are false.

5. Q5. Why are commercial banks willing to lend money to poor women organized as Self-Help Groups (SHGs) even when they possess no individual collateral?

   • A.Because the United Nations guarantees 100 per cent repayment of all SHG defaults.
   • B.Because the bank manager becomes a joint owner of the members' residential homes.
   • C.Because women members surrender their voting voter ID cards to the bank vault.
   • D.Because the loan is sanctioned in the name of the group, and any non-repayment is followed up seriously by other members, ensuring joint collective responsibility.✓
   Solution

   D is correct because the textbook explains: 'It is for this reason that banks are willing to lend to poor women when organised in SHGs, even though they have no collateral as such... The group is responsible for the repayment of the loan. Any case of non-repayment of loan by any one member is followed up seriously by other members in the group.' Mistakes A, C, and B are baseless.

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