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16 Sep 2014, 01:55
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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.
Based on the passage, which factor is most likely to determine whether a micro-lending program remains successful over time?
A. Requiring every borrower to submit a formally written business plan before a loan is disbursed
B. A bank’s willingness to adjust its administrative methods when local borrowers view the original oversight as intrusive
C. Keeping each loan below about one thousand dollars so that repayments stay manageable
D. Limiting loans to certain trades, such as bakeries or tailor shops, that have predictable cash flow
E. Relying on the historically high repayment rate of micro-loans as proof that no administrative change is necessary
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.
Based on the passage, which factor is most likely to determine whether a micro-lending program remains successful over time?
A. Requiring every borrower to submit a formally written business plan before a loan is disbursed
B. A bank’s willingness to adjust its administrative methods when local borrowers view the original oversight as intrusive
C. Keeping each loan below about one thousand dollars so that repayments stay manageable
D. Limiting loans to certain trades, such as bakeries or tailor shops, that have predictable cash flow
E. Relying on the historically high repayment rate of micro-loans as proof that no administrative change is necessary
16 Sep 2014, 01:55
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Official Solution:
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.
Based on the passage, which factor is most likely to determine whether a micro-lending program remains successful over time?
A. Requiring every borrower to submit a formally written business plan before a loan is disbursed
B. A bank’s willingness to adjust its administrative methods when local borrowers view the original oversight as intrusive
C. Keeping each loan below about one thousand dollars so that repayments stay manageable
D. Limiting loans to certain trades, such as bakeries or tailor shops, that have predictable cash flow
E. Relying on the historically high repayment rate of micro-loans as proof that no administrative change is necessary
A) Incorrect. A clearly defined business plan is one of the initial qualifications for receiving a micro-loan, but the passage does not link this requirement to the long-term success of a lending program. The later difficulties arose from administrative style, not from weak business plans.
B) Correct Answer. The passage notes that banks first used weekly progress meetings run by village committees. Borrowers came to view those meetings as intrusive and began to default “just to avoid the meetings,” forcing banks to “seek other forms of administration.” Programs that revise their oversight when it proves counter-productive are more likely to keep repayment rates high and maintain investor trust. Flexibility in administration is therefore the factor most clearly tied to continued success.
C) Incorrect. While micro-loans are “generally made for less than $1 000,” the text treats this as a defining feature, not as a variable that determines whether a program remains effective over time.
D) Incorrect. The passage lists bakeries, dairies, tailor shops, and small retail stores as examples of ventures a borrower might open, but it never suggests that restricting loans to certain trades helps or hurts program performance.
E) Incorrect. Early micro-loan programs did enjoy high repayment rates, yet some still failed when administrative practices alienated borrowers. Relying on past success while refusing to adjust oversight is precisely what put some banks into a “trust vacuum,” so this approach would undermine, not secure, long-term success.
Answer: B
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.
Based on the passage, which factor is most likely to determine whether a micro-lending program remains successful over time?
A. Requiring every borrower to submit a formally written business plan before a loan is disbursed
B. A bank’s willingness to adjust its administrative methods when local borrowers view the original oversight as intrusive
C. Keeping each loan below about one thousand dollars so that repayments stay manageable
D. Limiting loans to certain trades, such as bakeries or tailor shops, that have predictable cash flow
E. Relying on the historically high repayment rate of micro-loans as proof that no administrative change is necessary
A) Incorrect. A clearly defined business plan is one of the initial qualifications for receiving a micro-loan, but the passage does not link this requirement to the long-term success of a lending program. The later difficulties arose from administrative style, not from weak business plans.
B) Correct Answer. The passage notes that banks first used weekly progress meetings run by village committees. Borrowers came to view those meetings as intrusive and began to default “just to avoid the meetings,” forcing banks to “seek other forms of administration.” Programs that revise their oversight when it proves counter-productive are more likely to keep repayment rates high and maintain investor trust. Flexibility in administration is therefore the factor most clearly tied to continued success.
C) Incorrect. While micro-loans are “generally made for less than $1 000,” the text treats this as a defining feature, not as a variable that determines whether a program remains effective over time.
D) Incorrect. The passage lists bakeries, dairies, tailor shops, and small retail stores as examples of ventures a borrower might open, but it never suggests that restricting loans to certain trades helps or hurts program performance.
E) Incorrect. Early micro-loan programs did enjoy high repayment rates, yet some still failed when administrative practices alienated borrowers. Relying on past success while refusing to adjust oversight is precisely what put some banks into a “trust vacuum,” so this approach would undermine, not secure, long-term success.
Answer: B
23 Apr 2025, 00:34
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V01-27( Question -2 ), option D is already stated well and clear in the 1st 2 lines of the passage. How is that an assumption? Because assumptions should always be unstated. MartyMurray GMATNinja bb
