Economics • Banking & FinanceMedium
How do microfinance institutions and Self-Help Groups interact with commercial banks under the linkage banking model promoted in rural districts of Punjab?
A. Commercial banks provide bulk loans to federated Self-Help Groups for on-lending to women entrepreneurs at the grassroots level✓ Correct Answer
B. Self-Help Groups act as autonomous central banks issuing legal tender within village clusters
C. Microfinance institutions replace commercial banks by collecting statutory liquidity ratios from rural depositors
D. Commercial banks directly audit the internal political affiliations of group members before disbursing funds
💡 Solution & Explanation
The Self-Help Group-Bank Linkage Model bridges formal banking and rural poor by allowing commercial banks to extend collateral-free credit to organized groups for micro-enterprise activities. Self-Help Groups do not possess legal tender issuance powers. Microfinance institutions cannot collect statutory liquidity ratios, which is an RBI mandate for scheduled banks. Auditing political affiliations is outside the legal mandate of commercial lenders.
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