UPSC Prelims 2011 Q38: Indian Economy – Digital Payments & Financial Inclusion
Microfinance is the provision of financial services to people of low - income groups. This
includes both the consumers and the self - employed. The service/services rendered under
microfinance is/are:
1. Credit facilities
2. Savings facilities
3. Insurance facilities
4. Fund Transfer facilities
Select the correct answer using the codes given below the lists:
- (a) 1 only
- (b) 1 and 4 only
- (c) 2 and 3 only
- (d) 1, 2, 3 and 4
Answer: (d) 1, 2, 3 and 4
Explanation
Services covered under microfinance
Microfinance is a broad umbrella of financial services targeted at low-income groups, not just one kind of service.
| Service | Verdict | Reason |
|---|---|---|
| 1. Credit facilities | Correct | Microcredit/microloans are the most basic microfinance service |
| 2. Savings facilities | Correct | Micro-savings accounts are a core microfinance offering |
| 3. Insurance facilities | Correct | Micro-insurance products protect low-income clients against risk |
| 4. Fund transfer facilities | Correct | Modern microfinance institutions also enable remittances/fund transfers |
Microfinance scope:
| Point | Detail |
|---|---|
| Core services | Credit, savings, insurance, remittance |
| Target group | Low-income consumers and the self-employed |
| Key institutions | NBFC-MFIs, SHGs, cooperative banks |
Answer: (d) 1, 2, 3 and 4.
Why each option is right or wrong
- (a) Incorrect. Services 2, 3 and 4 are also part of microfinance, so '1 only' is far too narrow.
- (b) Incorrect. Services 2 and 3 (savings, insurance) are also included, so this combination is incomplete.
- (c) Incorrect. Services 1 and 4 (credit, fund transfer) are also included, so this leaves out real services.
- (d) CORRECT. Microfinance spans all four: credit, savings, insurance, and fund transfer services.
Key point
Microfinance covers credit, savings, insurance, AND fund transfer facilities — all four, not a narrow subset.
Remember
Microfinance services: credit, savings, insurance, and fund transfer — all four.
Common mistakes
- Thinking microfinance means only microcredit (loans).
- Forgetting savings and insurance are equally core microfinance products.
- Underestimating how modern microfinance has expanded to include remittances.
Exam tip
Microfinance is a 4-in-1 basket: credit + savings + insurance + remittance — not just loans.
Sources
- Reserve Bank of India — Report of the Sub-Committee of the Central Board of Directors to Study Issues and Concerns in the Microfinance Institutions Sector (Malegam Committee), January 2011
- National Bank for Agriculture and Rural Development — Status of Microfinance in India 2010–11