Test: Development Finance Institutions (DFIs) - UGC NET MCQ

- The assertion is true as IDBI was indeed converted into a universal bank in 2003.

- The reason is also true; ICICI Limited did merge with ICICI Bank Limited, creating a universal bank.

- However, the reason does not explain the assertion, as it pertains to ICICI rather than IDBI. Thus, the correct answer is Option B, where both statements are true, but the reason does not explain the assertion.

- The Assertion (A) is true as DFIs indeed provide guarantees to banks on behalf of companies and assist in underwriting processes.

- The Reason (R) is false because DFIs not only provide loans but also engage significantly in equity underwriting, which includes the commitment to purchase shares in IPOs.

- Since the Reason does not provide a correct explanation for the Assertion, the correct answer is Option B.

Statement 1 is correct because NABARD was indeed founded based on the Shivraman Committee's recommendations, focusing on the financing of agriculture and rural sectors. Statement 2 is also correct as the NHB was established to promote and regulate housing finance institutions in India. Therefore, both statements are accurate, making Option C the correct answer.

- The assertion is correct as IFCI was indeed the first DFI established in India in 1948.

- The reason is also correct; ICICI was founded in 1955 with the support of the World Bank to promote industrial development.

- However, the reason does not explain the assertion because it focuses on ICICI's establishment rather than IFCI's status as the first DFI. Therefore, the correct answer is Option A, as both statements are true, but the reason does not explain the assertion.

- The Assertion (A) is true; DFIs do provide technical assistance such as project reports and viability studies to help ensure that investments are sound and successful.

- The Reason (R) is false because while DFIs aim to achieve financial returns, they also prioritize social development, which is a core part of their mission.

- Since the Assertion is correct but the Reason is incorrect, the correct answer is Option C.

Development Finance Institutions are often owned by government entities or charitable organizations, which enables them to pursue developmental objectives rather than solely profit-driven motives. This ownership structure allows DFIs to target projects that have social impacts, such as poverty alleviation and job creation, particularly in developing regions. An additional fact is that DFIs can also play a significant role in mobilizing private sector investments, thus enhancing overall economic growth.

Both statements are correct. Statement 1 accurately describes the purpose of the IRCI, which was indeed founded to revive weak industrial units through financial and technical support. Statement 2 is also correct, as SIDBI was established in 1989 and granted autonomy in 1998, enabling it to better serve small industries in India. Therefore, the correct answer is Option C: Both 1 and 2.

Development Finance Institutions (DFIs) primarily act as intermediaries that facilitate the flow of international capital by bridging the gap between public aid and private investments. They support projects that may not have access to traditional commercial financing, thereby promoting economic development and sustainability. An interesting fact is that many DFIs also focus on investing in sectors that contribute to social and environmental goals, such as renewable energy and infrastructure development.

Medium-term financing is generally categorized as loans or financial support that lasts from 1 to 5 years. This type of financing is often used for projects that require a balance between short-term and long-term funding solutions, such as equipment purchases or business expansion. Interestingly, medium-term financing can provide businesses with the flexibility they need to manage cash flow while still investing in growth opportunities.

The primary goal of Development Finance Institutions (DFIs) is to contribute to the economic development of a country. DFIs aim to support projects that enhance infrastructure, create jobs, and foster sustainable growth, particularly in developing regions. By focusing on long-term economic stability rather than immediate profits, DFIs play a crucial role in shaping a healthier economy. An interesting fact is that DFIs often focus on sectors that are overlooked by commercial banks, such as agriculture and renewable energy.