Consider the following statements regarding the Non-Banking Finance Companies- Microfinance Institutions (NBFC-MFIs):1. For entities to qualify as NBFC-MFI, they should have at least 50% of their assets in microfinance.2. NBFC-MFIs are regulated by the Reserve Bank of India.3. Currently, NBFC-MFIs account for the highest share of the microfinance sector.Which of the statements given above is/are correct?a)1 onlyb)2 and 3 onlyc)1 and 3 onlyd)1, 2 and 3Correct answer is option 'B'. Can you explain this answer?

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Consider the following statements regarding the Non-Banking Finance Companies- Microfinance Institutions (NBFC-MFIs):

1. For entities to qualify as NBFC-MFI, they should have at least 50% of their assets in microfinance.

2. NBFC-MFIs are regulated by the Reserve Bank of India.

3. Currently, NBFC-MFIs account for the highest share of the microfinance sector.

Which of the statements given above is/are correct?

a)
1 only
b)
2 and 3 only
c)
1 and 3 only
d)
1, 2 and 3

Correct answer is option 'B'. Can you explain this answer?

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Consider the following statements regarding the Non-Banking Finance Co...

The Reserve Bank of India (RBI) released its final guidelines for microfinance institutions (MFIs) that will be applicable to all entities (banks, small finance banks and NBFCs) engaged in this sector last year.
Unlike the earlier definition that distinguished between rural and urban, RBI has now set a common household limit of Rs 300,000 for loans to qualify as microfinance. For entities to qualify for an NBFC- MFI license, they should have at least 75% of assets in microfinance and the cap on NBFCs was increased to 25% of assets as against 10% earlier. Hence, statement 1 is not correct.
The guidelines are positive for NBFC-MFIs, especially because it levels the playing field for them (hitherto the 10% spread cap was applicable only to NBFC-MFIs) and it allows the board to create a policy that prices the credit risk adequately. Increasing the household income threshold to Rs 300,000 will also expand the addressable market for MFI players.
The NBFC-MFIs (non banking finance company-micro finance institutions) group dominated the microfinance market with portfolio share of 35.1% as of September last year, credit information services company Crif High Mark said in a report. Hence, statement 3 is correct.
It said that NBFC-MFIs surpassed banks by a thin margin. Banks as a group controls 34.8% of the market, in which lenders provide micro loans without collateral to joint liability group members. Loans given by banks to self help group members are not included here.
Microfinance is a financial service provided to low-income individuals or groups who otherwise would have no other access to financial services. Microfinance allows people to take small business loans in a manner that is consistent with ethical lending practices. There are basically two distinct approaches for extending micro finance services in India viz. the Bank led approach called Self Help Group–Bank Linkage Programme (SHG-BLP), and the Micro Finance Institution (MFI) led approach. Microfinance industry in India is diverse with several types of players delivering financial services viz. credit, insurance and pension to the low income households.
The various microfinance industry players are broadly categorized into five types: Banks, NBFC- MFIs, Small Finance Banks, NBFCs and Non-profit MFIs. All of these, except the Non-profit MFIs, are regulated by RBI. The Non-profit MFIs are mostly registered as Societies or Trusts and are regulated by the respective Acts. Voluntary agencies /NGOs were also active in the sector as financial intermediaries and were mostly registered as trusts or societies. Many of them have helped in the growth of the sector by helping SHGs to organize themselves into federations that performed many non-financial but crucial functions like social and capacity building functions, SHG promotion training, undertaking internal audit and serving as backward and forward linkages. Hence, statement 2 is correct.

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Consider the following statements regarding the Non-Banking Finance Co...

Explanation:

1. Asset Composition for NBFC-MFIs:
- The first statement is incorrect as for entities to qualify as NBFC-MFI, they should have at least 85% of their assets in microfinance. This means that the entity's lending activities must predominantly focus on microfinance.

2. Regulation by RBI:
- The second statement is correct. NBFC-MFIs are regulated by the Reserve Bank of India (RBI) under the regulatory framework for NBFCs. The RBI sets guidelines and regulations to ensure the stability and growth of the microfinance sector.

3. Share in the Microfinance Sector:
- The third statement is also correct. Currently, NBFC-MFIs account for the highest share of the microfinance sector in India. These institutions play a crucial role in providing financial services to underserved and unbanked populations, particularly in rural areas.
Therefore, the correct answer is option 'B' (2 and 3 only), as the first statement is inaccurate in relation to the asset composition required for NBFC-MFIs.

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Consider the following statements regarding the Non-Banking Finance Companies- Microfinance Institutions (NBFC-MFIs):1. For entities to qualify as NBFC-MFI, they should have at least 50% of their assets in microfinance.2. NBFC-MFIs are regulated by the Reserve Bank of India.3. Currently, NBFC-MFIs account for the highest share of the microfinance sector.Which of the statements given above is/are correct?a)1 onlyb)2 and 3 onlyc)1 and 3 onlyd)1, 2 and 3Correct answer is option 'B'. Can you explain this answer?

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