Previous Year Question
Micro-finance is the provision of financial services to people of low-income groups. This includes both the consumers and the self-employed. The service/services rendered under micro-finance is/are:
Credit facilities
Savings facilities
Insurance facilities
Fund transfer facilities
Select the correct answer using the codes given below:
Only 1
1 and 4
2 and 3
1, 2, 3 and 4
Correct Answer: D
Detailed Solution
Microfinance, in its broad sense, means providing small-value formal financial services to low-income households, small producers and self-employed persons. It is, therefore, wider than the provision of small loans alone.
Statement 1 is correct. Microcredit is the most prominent component of microfinance. Small, generally collateral-free loans may be provided for agriculture, animal husbandry, petty trade, cottage industries and other income-generating activities.
Under RBI’s present regulatory framework, a microfinance loan is a collateral-free loan granted to a household within the prescribed income limit. Such loans are not restricted to a particular end use.
Statement 2 is correct. Small and regular savings help low-income households manage emergency expenditure, seasonal fluctuations in income and future financial requirements. Savings facilities may be supplied by banks, cooperative institutions or other entities legally authorised to accept deposits.
Every Microfinance Institution is not automatically permitted to accept public deposits. A distinction must, therefore, be maintained between the broader services covered by microfinance and the legal powers of an individual MFI.
Statement 3 is correct. Microinsurance may provide low-premium life, health, crop, livestock or accident insurance to low-income households. It protects them against risks such as death, illness, crop failure and loss of property.
Statement 4 is correct. Fund-transfer and remittance facilities are also part of the broader microfinance framework. They enable rural households, migrant workers and small businesses to send and receive money at relatively low cost.
All four services need not be supplied by the same institution. Banks, NBFC-MFIs, insurance companies and payment-service providers may provide them according to their respective regulatory authorisations.