Microlending as a form of foreign aid first became popular : GMAT Reading Comprehension (RC)
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# Microlending as a form of foreign aid first became popular

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Microlending as a form of foreign aid first became popular [#permalink]

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23 Jun 2008, 23:18
Complete passage is discussed at the below mentioned link
microlending-as-a-form-of-foreign-aid-first-became-popular-147729.html#p1186339

Microlending as a form of foreign aid first became popular in the 1970s as a way to bypass bureaucracy and administration costs that frequently, though unintentionally, prevented money from reaching individuals and families in struggling countries. In contrast to traditional lending, which tenders large sums to lendees who have strong credit histories and steady employment, microloans are generally made for less than $1,000 and are available without collateral to individuals with questionable credit histories who may or may not be employed. The central qualification for approving a microloan recipient is that the individual have a clearly defined plan for a small business, whether that be a bakery, dairy, tailor shop, or retail store. Recipients are bound to use profits from their business to repay the loan, and lenders since the inception of microloan programs have reported surprisingly high returns on their investment: up to 96% of microloans are repaid on time. Though there are several administrative options for microloan programs, one of the earliest has remained the most common. According to this approach, a branch of an established bank or a bank specially formed to issue microloans will locate in an area of need and begin issuing loans to local entrepreneurs. In the early years of microloan programs, banks frequently set up village committees, composed of financial advisors and bank staff, to host weekly progress meetings. This proved a difficult administrative strategy to maintain, however, when villagers began to default on their loans just to avoid the meetings and what they often perceived as interference in their businesses. Though most banks quickly revised this approach when they realized its negative potential, the trust vacuum created when they could not offer a return to investors led many banks to seek other forms of administration. It can be inferred from the passage that the author makes which of the following assumptions about traditional lending in the form of foreign aid? Traditional lenders are more interested in earning profit than in giving assistance. Leaders of struggling countries are dissatisfied with the approach of traditional lending. Traditional lending is not flexible enough to loan amounts less than$1,000.

A complicated administration process often limited the money available to individuals and families.

Traditional lending is outdated and will eventually be replaced by microloan programs.
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25 Jun 2008, 11:03
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Quote:
Microlending as a form of foreign aid first became popular in the 1970s as a way to bypass bureaucracy and administration costs that frequently, though unintentionally, prevented money from reaching individuals and families in struggling countries. In contrast to traditional lending, which tenders large sums to lendees who have strong credit histories and steady employment, microloans are generally made for less than $1,000 and are available without collateral to individuals with questionable credit histories who may or may not be employed. The central qualification for approving a microloan recipient is that the individual have a clearly defined plan for a small business, whether that be a bakery, dairy, tailor shop, or retail store. Hmm. I eliminated C because it seemed for me as too strong (but then, I was sure that I was doing CR ). Here is my reasoning: These facts are stated about traditional lending explicitly, strongly assumed or can be inferred: - hard to bypass bureaucracy and administration costs - sometimes money didn’t reach people - typically lends large sum of money - individual need to have strong credit history and steady employment in order to qualify Overall, it can be inferred prom the passage that traditional lending is less flexible than microlending (in general). However, from there does not follow that traditional lending is not suitable for sums less than 1000$. In principle, sums less than 1000$could be lend under the traditional lending scheme. Perhaps, it won’t be as convenient as under microlending scheme, but it is still possible. C suggests that this is not possible at all. What do you think? SVP Joined: 04 May 2006 Posts: 1926 Schools: CBS, Kellogg Followers: 22 Kudos [?]: 1011 [0], given: 1 Re: RC [#permalink] ### Show Tags 23 Jun 2008, 23:27 rpmodi wrote: In contrast to traditional lending, which tenders large sums to lendees who have strong credit histories and steady employment, microloans are generally made for less than$1,000 and are available without collateral to individuals with questionable credit histories who may or may not be employed.

rpmodi wrote:
It can be inferred from the passage that the author makes which of the following assumptions about traditional lending in the form of foreign aid?

Traditional lenders are more interested in earning profit than in giving assistance.

Leaders of struggling countries are dissatisfied with the approach of traditional lending.

Traditional lending is not flexible enough to loan amounts less than $1,000. A complicated administration process often limited the money available to individuals and families. Traditional lending is outdated and will eventually be replaced by microloan programs. C for me! _________________ SVP Joined: 17 Jun 2008 Posts: 1569 Followers: 11 Kudos [?]: 250 [0], given: 0 Re: RC [#permalink] ### Show Tags 24 Jun 2008, 01:56 C for me too. Senior Manager Joined: 19 Apr 2008 Posts: 320 Followers: 3 Kudos [?]: 78 [0], given: 0 Re: RC [#permalink] ### Show Tags 24 Jun 2008, 08:51 Anymore RC lovers?? Director Joined: 12 Apr 2008 Posts: 500 Location: Eastern Europe Schools: Oxford Followers: 14 Kudos [?]: 221 [0], given: 4 Re: RC [#permalink] ### Show Tags 24 Jun 2008, 12:05 Hmm. But why not D? Quote: Traditional lenders are more interested in earning profit than in giving assistance. Leaders of struggling countries are dissatisfied with the approach of traditional lending. Traditional lending is not flexible enough to loan amounts less than$1,000.

A complicated administration process often limited the money available to individuals and families. (Quote:
Microlending as a form of foreign aid first became popular in the 1970s as a way to bypass bureaucracy and administration costs that frequently, though unintentionally, prevented money from reaching individuals and families in struggling countries)

Traditional lending is outdated and will eventually be replaced by microloan programs.

Also I'd like to know whether this is a realistic length for a GMAT CR...
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24 Jun 2008, 12:24
i think D is a premise..B is the assumption

Last edited by FN on 24 Jun 2008, 12:27, edited 1 time in total.
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24 Jun 2008, 12:26
greenoak wrote:
Hmm. But why not D?

Quote:
Traditional lenders are more interested in earning profit than in giving assistance.

Leaders of struggling countries are dissatisfied with the approach of traditional lending.

Traditional lending is not flexible enough to loan amounts less than $1,000. A complicated administration process often limited the money available to individuals and families. (Quote: Microlending as a form of foreign aid first became popular in the 1970s as a way to bypass bureaucracy and administration costs that frequently, though unintentionally, prevented money from reaching individuals and families in struggling countries) Traditional lending is outdated and will eventually be replaced by microloan programs. Also I'd like to know whether this is a realistic length for a GMAT CR... This is RC Director Joined: 12 Apr 2008 Posts: 500 Location: Eastern Europe Schools: Oxford Followers: 14 Kudos [?]: 221 [0], given: 4 Re: RC [#permalink] ### Show Tags 24 Jun 2008, 14:02 To much CR's for me today, I guess... I've started to see everything as CR... Senior Manager Joined: 19 Apr 2008 Posts: 320 Followers: 3 Kudos [?]: 78 [0], given: 0 Re: RC [#permalink] ### Show Tags 25 Jun 2008, 10:24 I also chose C and turns out the OA is D . Can some one point out reason to eliminate C? Senior Manager Joined: 19 Apr 2008 Posts: 320 Followers: 3 Kudos [?]: 78 [0], given: 0 Re: RC [#permalink] ### Show Tags 26 Jun 2008, 16:00 Makes sense +1 VP Joined: 03 Apr 2007 Posts: 1367 Followers: 4 Kudos [?]: 611 [0], given: 10 Re: RC [#permalink] ### Show Tags 29 Jun 2008, 16:32 rpmodi wrote: Microlending as a form of foreign aid first became popular in the 1970s as a way to bypass bureaucracy and administration costs that frequently, though unintentionally, prevented money from reaching individuals and families in struggling countries. In contrast to traditional lending, which tenders large sums to lendees who have strong credit histories and steady employment, microloans are generally made for less than$1,000 and are available without collateral to individuals with questionable credit histories who may or may not be employed. The central qualification for approving a microloan recipient is that the individual have a clearly defined plan for a small business, whether that be a bakery, dairy, tailor shop, or retail store. Recipients are bound to use profits from their business to repay the loan, and lenders since the inception of microloan programs have reported surprisingly high returns on their investment: up to 96% of microloans are repaid on time.

Though there are several administrative options for microloan programs, one of the earliest has remained the most common. According to this approach, a branch of an established bank or a bank specially formed to issue microloans will locate in an area of need and begin issuing loans to local entrepreneurs. In the early years of microloan programs, banks frequently set up village committees, composed of financial advisors and bank staff, to host weekly progress meetings. This proved a difficult administrative strategy to maintain, however, when villagers began to default on their loans just to avoid the meetings and what they often perceived as interference in their businesses. Though most banks quickly revised this approach when they realized its negative potential, the trust vacuum created when they could not offer a return to investors led many banks to seek other forms of administration.

It can be inferred from the passage that the author makes which of the following assumptions about traditional lending in the form of foreign aid?

Traditional lenders are more interested in earning profit than in giving assistance.

Leaders of struggling countries are dissatisfied with the approach of traditional lending.

Traditional lending is not flexible enough to loan amounts less than \$1,000.

A complicated administration process often limited the money available to individuals and families.

Traditional lending is outdated and will eventually be replaced by microloan programs.

Late D

Microlending as a form of foreign aid first became popular in the 1970s as a way to bypass bureaucracy and administration costs that frequently, though unintentionally, prevented money from reaching individuals and families in struggling countries. In contrast to traditional lending, ..blah blah

The author assumes Microlending has a way to bypass buraucracy and administration costs but Traditional lending does not.So people will have to go through all the paper work to get loans.
Re: RC   [#permalink] 29 Jun 2008, 16:32
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