Microfinance means providing small loans at a low interest rate to poor people. These people are usually unable to obtain loans from commercial banks. It is intended to support development and began in Bangladesh. A World Bank study in 2014 found that microfinance raises consumer expenditure, the value of household assets, the size of the labour force and spending on children’s education.
(a)[2]
Define the term ‘the rate of interest’.
(b)[4]
Explain two reasons why poor people may struggle to obtain loans from commercial banks.
(c)[6]
Analyse how higher spending on education could raise inflation in the short run but lower it in the long run.
(d)[8]
Discuss whether higher consumer expenditure would be beneficial for an economy.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme. One marking point: “The fee / cost of borrowing money” …