What triggered the need for a regulatory framework for microfinance institutions in India?a)The unregulated lending practices of MFIsb)The emergence of new microfinance modelsc)The increasing involvement of NGOs in microfinanced)The desire to enhance rural livelihoodsCorrect answer is option 'A'. Can you explain this answer?

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What triggered the need for a regulatory framework for microfinance institutions in India?

a)
The unregulated lending practices of MFIs
b)
The emergence of new microfinance models
c)
The increasing involvement of NGOs in microfinance
d)
The desire to enhance rural livelihoods

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

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What triggered the need for a regulatory framework for microfinance in...

The need for a regulatory framework for microfinance institutions in India was triggered by the unregulated lending practices of MFIs. Until the beginning of the 21st century, microfinance activities were largely unregulated. However, the rapid growth in demand for microfinance services, particularly in 2010, led to a crisis within the sector, mainly in Andhra Pradesh. During this period, MFIs engaged in uncontrolled lending practices, resulting in a high level of borrowing per family. The excessive borrowing, combined with coercive recovery methods, resulted in a tragic situation where borrowers resorted to extreme measures, including suicides.
This crisis highlighted the urgent need for regulations to ensure ethical lending practices, responsible lending, and the protection of borrower rights. Consequently, the regulatory framework was introduced to address these issues and to create a more secure environment for microfinance activities in India

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What triggered the need for a regulatory framework for microfinance in...

The need for a regulatory framework for microfinance institutions in India was triggered by the unregulated lending practices of MFIs. Until the beginning of the 21st century, microfinance activities were largely unregulated. However, the rapid growth in demand for microfinance services, particularly in 2010, led to a crisis within the sector, mainly in Andhra Pradesh. During this period, MFIs engaged in uncontrolled lending practices, resulting in a high level of borrowing per family. The excessive borrowing, combined with coercive recovery methods, resulted in a tragic situation where borrowers resorted to extreme measures, including suicides.
This crisis highlighted the urgent need for regulations to ensure ethical lending practices, responsible lending, and the protection of borrower rights. Consequently, the regulatory framework was introduced to address these issues and to create a more secure environment for microfinance activities in India

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What triggered the need for a regulatory framework for microfinance in...

Introduction
The need for a regulatory framework for microfinance institutions (MFIs) in India was primarily triggered by the unregulated lending practices that posed significant risks to borrowers.
Unregulated Lending Practices
- Predatory Lending: Many MFIs engaged in predatory lending practices, charging exorbitant interest rates and imposing harsh penalties.
- Over-Indebtedness: Borrowers often took loans from multiple MFIs, leading to a cycle of over-indebtedness, where they struggled to repay loans, resulting in financial distress.
- Lack of Transparency: There was a significant lack of transparency in the lending processes, making it difficult for borrowers to understand the terms and conditions.
Social Impact
- Exploitation of Vulnerable Groups: The unregulated nature of MFIs often exploited marginalized communities, pushing them further into poverty.
- Negative Consequences: Instances of harassment for loan recovery and the tragic outcomes of borrower suicides highlighted the dire need for regulatory oversight.
Regulatory Measures Implemented
- Introduction of Guidelines: To address these issues, the Reserve Bank of India (RBI) introduced guidelines for MFIs to ensure responsible lending practices.
- Consumer Protection: The regulatory framework aimed to protect consumers from exploitative practices and ensure that MFIs operate in a fair and transparent manner.
Conclusion
In summary, the unregulated lending practices of MFIs in India highlighted the urgent need for a regulatory framework to safeguard borrowers' interests, promote fair lending, and ensure the sustainable growth of the microfinance sector.

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Direction: In the question given below, there are five statements marked A-E. All the statements except one belong to the same context. Find the odd one out and mark the correct answer from the given options.A. In India, even now the rural areas lack access to basic financial services.B. Mutual funds may offer two schemes - dividend (profits are given to investors from time to tim e) and growth (profits are ploughed back into the scheme leading to higher NAV).C. The Reserve Bank of India (RBI) had a mandate to promote rural credit and banking by virtue of the provisions of Section 54 of the RBI Act. Through the State Bank of India (SBI) Act in 1955, the SBI was made an important organisation for extending rural credit to supplement the efforts of cooperative institutions.D. The growth of the rural retail banking industry fosters financial inclusion by providing financial products and services to people in the farthest reaches of the country.E. However, the recent emergence of microfinance institutions (MFIs) and non-banking financial corporations (NBFCs) in this rural sector has led to a commendable growth in the industry.

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What triggered the need for a regulatory framework for microfinance institutions in India?a)The unregulated lending practices of MFIsb)The emergence of new microfinance modelsc)The increasing involvement of NGOs in microfinanced)The desire to enhance rural livelihoodsCorrect answer is option 'A'. Can you explain this answer?

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What triggered the need for a regulatory framework for microfinance institutions in India?a)The unregulated lending practices of MFIsb)The emergence of new microfinance modelsc)The increasing involvement of NGOs in microfinanced)The desire to enhance rural livelihoodsCorrect answer is option 'A'. Can you explain this answer? for Bank Exams 2025 is part of Bank Exams preparation. The Question and answers have been prepared according to the Bank Exams exam syllabus. Information about What triggered the need for a regulatory framework for microfinance institutions in India?a)The unregulated lending practices of MFIsb)The emergence of new microfinance modelsc)The increasing involvement of NGOs in microfinanced)The desire to enhance rural livelihoodsCorrect answer is option 'A'. Can you explain this answer? covers all topics & solutions for Bank Exams 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for What triggered the need for a regulatory framework for microfinance institutions in India?a)The unregulated lending practices of MFIsb)The emergence of new microfinance modelsc)The increasing involvement of NGOs in microfinanced)The desire to enhance rural livelihoodsCorrect answer is option 'A'. Can you explain this answer?.

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