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GNP per Capita
Read the case, and then complete the exercises below.

Case Study 1 Exercises with Answers

1. Before receiving her loan, how did Mala and her husband support their family? [They worked on their land. They were tied to the growing seasons.]

2. What did Mala use her SHARE loan for? [She bought a cow and a goat.]

3. Aside from giving some additional income, how did Mala’s investment add to the financial stability of the family? [It helped to ensure that the family had income throughout the year, not just at planting and harvest times.]

4. Why didn’t Mala use the money she borrowed from SHARE to pay for the roof and her children’s shoes? [By investing in the cow and goat, she could ensure that she would have profits for years to come which she could use to pay back the loan as well as buy things her family needed. If she had used the money to buy shoes and a roof at the beginning, she would have had no means of paying the money back, nor would she have been able to buy other things for her family later on.]

5. Who are the clients served by the SHARE loan program? [The clients of the SHARE program are poor women in developing countries who would otherwise have no access to credit to develop their businesses.]

6. How does microfinance work? [People who cannot get regular loans because they are poor credit risks are able to come together and borrow money as a group. They take joint responsibility for the repayment of their loan. The recipients of the loans invest the money in their businesses--for example by buying new equipment, farm animals, or seed, or by hiring additional employees--in order to make their businesses grow at a faster rate and make greater profits. Studies show that the money made from the investment usually goes toward food, shelter, clothing, or education for the family, thus increasing the chance that the generations that follow will be healthier and more financially secure than their parents.]

7. How can microfinance, which works on a small, individual level, affect the larger economy? [By lending money to poor people to start their own businesses, microfinancing helps to improve individual standards of living. Beyond that, recipients of microfinance loans contribute to the national economy by producing more goods and services and often hiring others to work for them. And with the additional money they earn, they can buy more goods and services, again adding to the national economy. In addition, microfinancing can help more people move from the informal economy to the formal.]

8. This case study shows how microfinancing works in developing economies. Would industrial economies be able to benefit from a similar system? Explain your answer. [Answers will vary.]

9. How do people get small business loans where you live? How well does the system work? Explain your answer. [Answers will vary.]

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