UPSC Prelims Practice Questions — Cabinet approves continuation of Credit Guarantee Fund for Micro Units

Q1. Consider the following statements: Which of the following is correct in respect of the above statements?

  1. Under CGFMU, the guarantee cover on a term loan is linked to the amount outstanding rather than to the amount originally sanctioned.
  2. As a term loan is repaid in instalments, the lender's exposure at any point is the unpaid balance, not the sum originally lent.
  • A. Both Statement-I and Statement-II are correct and Statement-II explains Statement-I
  • B. Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I
  • C. Statement-I is correct, but Statement-II is incorrect
  • D. Statement-I is incorrect, but Statement-II is correct

Q2. Consider the following statements: Which of the following is correct in respect of the above statements?

  1. A public corpus of Rs.5,000 crore for CGFMU is expected to enable lending of about Rs.12.6 lakh crore over five years.
  2. A guarantee fund must hold the full value of the loans it guarantees in its corpus, and repayments allow the same corpus to be reused many times.
  • A. Both Statement-I and Statement-II are correct and Statement-II explains Statement-I
  • B. Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I
  • C. Statement-I is correct, but Statement-II is incorrect
  • D. Statement-I is incorrect, but Statement-II is correct

Q3. An insured lender may appraise and monitor loans less carefully (moral hazard). Consider the following design features of a credit guarantee scheme: Which of the above would tend to reduce this problem on the part of lending institutions?

  1. Covering 100% of every loss on default while charging lenders no guarantee fee
  2. Covering only a portion of the amount in default, so that the lender bears the rest of the loss
  3. Making cover available to a lender regardless of its past record of claims and defaults
  4. Linking cover to the lender's actual exposure and capping total claims on a lender's portfolio
  • A. 2 and 4 only
  • B. 1, 2 and 4 only
  • C. 1 and 3 only
  • D. 2, 3 and 4 only

Q4. CGFMU has been continued for loans made during the XVIth Finance Commission cycle. With reference to the Finance Commission of India, consider the following statements: Which of the statements given above is/are correct?

  1. It is constituted by the President at the expiration of every fifth year or at such earlier time as the President considers necessary.
  2. Besides tax devolution, it recommends the principles that should govern grants-in-aid of the revenues of States out of the Consolidated Fund of India.
  3. Its recommendations on the share of States in Union taxes are binding on the Union Government.
  • A. 1 only
  • B. 1 and 2 only
  • C. 2 and 3 only
  • D. 1, 2 and 3