Which of the following is a difference between self-help groups (SHGs) and microfinance institutions (MFIs) in India?
- (a)SHGs provide only credit, while MFIs provide a range of financial services.
- (b)SHGs rely on government subsidies for funding, while MFIs rely on commercial
- (c)SHGs are typically small, community-based organisations, while MFIs are larger and
- (d)SHGs are non-profit organisations, while MFIs are for-profit organisations.
Answer
Why
Correct — C. The difference that actually holds between the two is scale and origin.
A self-help group is a small community body — typically 10 to 20 members from one locality — that pools its own savings and lends within itself.
A microfinance institution is a formal lender: it raises outside capital, employs staff and serves borrowers across many places.
That is the contrast option (c) states, even though its text breaks off in the response sheet at 'while MFIs are larger and'.
Why the others are wrong
- (a)SHGs provide only credit, while MFIs provide a range of financial services. — SHGs do more than credit — the group starts with regular thrift, and members get savings, internal lending and often insurance or bank linkage. This option reverses the picture.
- (b)SHGs rely on government subsidies for funding, while MFIs rely on commercial — An SHG's corpus is the members' own savings, topped up by bank loans under the SHG-Bank Linkage Programme. Government subsidy is not the defining source of its funds.
- (d)SHGs are non-profit organisations, while MFIs are for-profit organisations. — The non-profit or for-profit line does not separate them. Indian MFIs operate as NBFC-MFIs, societies, trusts and Section 8 companies, so some are for-profit and some are not.
Concept
Both SHGs and MFIs reach people that commercial banks find costly to serve, but they are different kinds of thing.
An SHG is a group: neighbours who save regularly into a common fund, lend it among themselves, and once the group has a track record borrow from a bank under the SHG-Bank Linkage Programme that NABARD began as a pilot in 1992.
An MFI is an institution: it raises capital, employs field staff and lends to individuals or joint-liability groups. The regulated ones are NBFC-MFIs, supervised by the RBI.
Options (b) and (c) as captured from the response sheet break off mid-sentence — the printed line runs out. The keyed option is still decidable on the half that survives, because that half carries the contrast: small and community-based against larger and institutional.
Key facts
- An SHG is typically 10 to 20 members from the same locality who pool regular savings.
- NABARD started the SHG-Bank Linkage Programme as a pilot in 1992.
- Regulated microfinance institutions in India are registered as NBFC-MFIs and supervised by the RBI.
- Indian MFIs also exist as societies, trusts and Section 8 companies, so not all of them are for-profit.
Study next
Common traps
- Reading SHG as 'government-funded' when its core money is members' own savings.
- Reading MFI as 'for-profit by definition' when the legal forms vary.
The same block of ideas is asked as a definition — microfinance on 11 Sep 2024, 16:00, GA Q.15 and again on 19 Sep 2024, 12:30, GA Q.14 — and as a component question on 19 Sep 2024, 09:00, GA Q.8, which asks what belongs to the SHG-bank linkage programme.
Related PYQs
No directly related past PYQ was found.