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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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New post Updated on: 06 Jan 2019, 10:59
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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?
A)Traditional lenders are more interested in earning profit than in giving assistance.
B)Leaders of struggling countries are dissatisfied with the approach of traditional lending.
C)Traditional lending is not flexible enough to loan amounts less than $1,000.
D)A complicated administration process often limited the money available to individuals and families.
E)Traditional lending is outdated and will eventually be replaced by microloan programs.







The answer to this is D , but my question is , is'nt D explicitly mentioned in passage , then how is it something that the author assumed ??

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Originally posted by shikhar on 23 Feb 2013, 10:50.
Last edited by Skywalker18 on 06 Jan 2019, 10:59, edited 1 time in total.
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Re: Microlending as a form of foreign aid first became popular  [#permalink]

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New post 01 Mar 2013, 20:55
D is the correct answer.

The paragraph does not explicitly say that traditional lending was inefficient. It says that microlending first came to the fore to bypass bureaucracy and administration costs that prevented the funds from reaching their intended audience. Therefore the assumption is that traditional systems were not able to bypass these costs and therefore limited the money made available to individuals and families in struggling countries.

With this, D is the clear winner.
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Re: Microlending as a form of foreign aid first became popular  [#permalink]

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New post 05 Jan 2019, 21:48

+1 kudos to the posts containing answer explanations of all questions


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

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New post 06 Jan 2019, 06:18
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2 mins 40 secs to get to the answer.

Summary:
Microlending (which is good) became popular in the '70s to bypass all the problems associated with normal lending and also to reach to the lowest rung of society ( in difficult parts of the world where foreign aid matters) as they were left out of the traditional lending sphere as they did not have good credit history of steady jobs. It did great as 96% of loans were repaid (less than $1000). The passage goes on to talk about the details of implementation - the first method stayed the most common despite certain cons associated with it. The passage goes on to outline the drawbacks in administrative setup and ends without giving a solution.


Inference type question completely dealing with the first paragraph of the passage. Asks why traditional lending is bad and this info can be found in the first few lines of the passage
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
A)Traditional lenders are more interested in earning profit than in giving assistance. TRAP - real world trap as the passage does not mention this at all even though this may be true. Hence we cannot infer this. Discard.
B)Leaders of struggling countries are dissatisfied with the approach of traditional lending. Nothing about the dissatisfaction of leaders is mentioned. Discard.
C)Traditional lending is not flexible enough to loan amounts less than $1,000. Reverse logic. Microlending deals with amounts less than $1000 but we cannot infer that traditional lending does not or is not flexible enough to do so
D)A complicated administration process often limited the money available to individuals and families. BINGO - this is verbatim from the first few lines of the passage. "Bureaucracy and administration costs cause problems" is mentioned.
E)Traditional lending is outdated and will eventually be replaced by microloan programs. "Outdated" cannot be inferred as nothing is mentioned. Discard.

Hope this helps.
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Re: Microlending as a form of foreign aid first became popular  [#permalink]

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New post 06 Jan 2019, 11:17
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way to bypass bureaucracy and administration costs that frequently, though unintentionally, prevented money from reaching individuals

It clearly says for D

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Re: Microlending as a form of foreign aid first became popular   [#permalink] 06 Jan 2019, 11:17
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