Microlenders Offer Small Loans to Borrowers Who are Unable to Get Loans GMAT Reading Comprehension

Reading Passage Question
Microlenders offer small loans to borrowers who are unable to get loans from traditional lenders. These borrowers are people in poverty who have no credit history, collateral, or steady employment. Microlending programs allow very poor people to develop or expand self-employment projects that generate additional income and lead them out of poverty. For example, a $100 microloan helped a Sri Lankan woman purchase equipment to produce candy from locally available raw materials. Since the initial investment, her business has grown to employ six women from her community, who are now her partners. Microcredit originated in the 1970s, when Professor Mohammad Yunus, a Bangladeshi economist, discovered the power of making very small personal loans to poor basket weavers. In 1983, he founded the Grameen Bank, which now has over 2,500 branches and 20,000 employees, and is 90 percent owned by borrower shareholders. In 2006, Professor Yunus was awarded the Nobel Peace Prize for "efforts to create economic and social development from below." In 2009, more than 128 million families received microloans, according to the Microcredit Summit Campaign. Over 80 percent of those receiving microloans are women, who have proved to be lower credit risks than men and consistently reinvest in their families and communities. In their press release, members of the Nobel Committee acknowledged that "lasting peace cannot be achieved unless large population groups find ways to break out of poverty. Microcredit is one such means."

Solution and Explanation

1. The author's primary objective in the passage is to

1. introduce readers to the concept and history of microcredit.
2. chronicle Professor Yunus's path to the Nobel Peace Prize.
3. explain that women are better credit risks than men.
4. demonstrate that microcredit is an ineffective way to bring families up from poverty.
5. predict the future of microcredit.

Answer: A
Explanation: In the given passage, the author has made an attempt to educate his/her readers regarding the concept and history of micro-finance. Additionally, he has also attempted to explain the importance of the same towards social upliftment and abating poverty.
In the first few lines, the author has explained the concept of micro-lending and the people who receive such types of loans. Over the next few lines, it provides a real-world example of a Sri-Lankan woman who had grown her business after receiving a micro-finance of nearly 100 dollars. Moreover, the passage cites the Bangladeshi economist, Professor Mohammad Yunus, who discovered and developed the concept of micro-credit during the 1970s. The passage states that he set up the Grameen Bank for providing more such loans to poor people.

2. The author of this passage would most likely agree with which of the following statements?

1. Microlenders are foolish not to insist on credit scores and collateral from their potential clients.
2. Microcredit is a virtually risk-free investment.
3. Microloans have only a small impact on relatively few people.
4. Professor Yunus has demonstrated that business interests and social consciousness are not mutually exclusive.
5. The microcredit model works only in third-world countries.

Answer: D
Explanation: The author would most likely agree that the microfinance model is most applicable to the third-world or developing nations across the world. According to the author, the entire concept of micro-lending was discovered by the renowned Bangladeshi economist, Professor Muhammad Yunus. He realized the potential of providing small private loans to poor basket weavers during the 1970s. Subsequently, he established the Grameen Bank in 1983 so that more such micro-loans can be provided to poor people. On account of this initiative, Professor Muhammad Yunus was also felicitated with the Nobel Peace Prize in 2009.

3. The author first quotes the Nobel Committee in order to

1. state that microlending leads to world peace.
2. confirm that microlending has successfully led people out of poverty.
3. illustrate the prestige of winning the award.
4. argue that development from below is more effective than traditional large-scale economic development programs.
5. defend against critics who feel that microlending is ineffective.

Answer: B
Explanation: The author strongly believes that the concept of microfinance can uplift the social conditions of the population in a region. Therefore, he stated the origin of the concept from the Bangladeshi economist, Professor Mohammad Yunus, during the 1970s. The economist had diligently attempted to help the people at improving their social and living conditions by giving them small private loans. Subsequently, he also set up the Grameen Bank in 1983 and was finally awarded the Nobel Peace Prize in 2006. With regard to this, the Nobel Committee, in their press release, appreciated his efforts. He stated how the concept of micro-finance is important for helping the poor people and bringing them out of poverty by improving their social conditions.

“Microlenders offer small loans to borrowers who are unable to get loans”- is a GMAT reading comprehension passage with answers. Candidates need a strong knowledge of English GMAT reading comprehension.

This GMAT Reading Comprehension consists of 3 comprehension questions. The GMAT Reading Comprehension questions are designed for the purpose of testing candidates’ abilities in understanding, analyzing, and applying information or concepts. Candidates can actively prepare with the help of GMAT Reading Comprehension Practice Questions.

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