While microfinance is widely promoted as a policy to support economic development and poverty reduction, its effectiveness in practice is often debated. Which of the following best describes a major limitation of microfinance schemes in developing countries?
These schemes rely heavily on physical collateral, which systematically excludes the poorest rural households from accessing credit.
The micro-loans are typically restricted to large-scale, capital-intensive manufacturing sectors, neglecting rural micro-entrepreneurs.
High administrative overheads can lead to high interest rates, and borrowers often use the funds for short-term consumption rather than productive investment.
The influx of foreign micro-capital causes a sharp appreciation of the national exchange rate, reducing the competitiveness of primary exports.
