Chapter 24 - Micro Finance Institutions (JAIIB - MODULE C)

1. Which institution is regarded as the pioneer of the Self Help Group (SHG)-Bank linkage programme in India?

  • A. State Bank of India
  • B. NABARD
  • C. NABARD
  • D. SIDBI
NABARD introduced and promoted the SHG-Bank linkage programme in the early 1990s, which became the backbone of microfinance delivery in India.

2. The Grameen Bank Model of microfinance was originally developed in which country?

  • A. India
  • B. Bangladesh
  • C. Nepal
  • D. Sri Lanka
The Grameen Bank was founded in Bangladesh by Prof. Muhammad Yunus in 1983, and it inspired microfinance models across the world including India.

3. In the Grameen Bank model, loans are typically given to:

  • A. Individual borrowers with collateral
  • B. Big corporates
  • C. Government departments
  • D. Groups of poor women without collateral
The Grameen Bank model focuses on group lending, mainly to women, without requiring collateral. Peer pressure ensures repayment.

4. Which of the following is NOT a common delivery model of microfinance in India?

  • A. Universal Banking Model
  • B. SHG-Bank Linkage Model
  • C. Grameen Model
  • D. Joint Liability Group Model
Universal banking is a broad financial model, not specifically a microfinance delivery model. SHG-Bank Linkage, Grameen Model, and JLG are the main microfinance delivery models in India.

5. Which statement correctly explains the Joint Liability Group (JLG) model of microfinance delivery?

  • A. JLG members must provide collateral for loans
  • B. Loans are given only to SHGs with a minimum of 20 members
  • C. Loans are given to small groups of farmers/tenants who take joint responsibility for repayment
  • D. JLGs are exclusively promoted by SIDBI
In JLGs, small groups of farmers or landless individuals borrow collectively, with each member jointly responsible for repayment, ensuring discipline and credit access without collateral.

6. In the SHG-Bank Linkage programme, what is the usual group size recommended for forming an SHG?

  • A. 5 to 10 members
  • B. 10 to 20 members
  • C. 25 to 30 members
  • D. More than 50 members
An SHG typically consists of 10–20 members, mostly women, who come together to save, lend, and access formal banking services collectively.

7. Under the SHG-Bank Linkage programme, what is the first step before an SHG becomes eligible for bank credit?

  • A. Registering under RBI guidelines
  • B. Getting NABARD approval
  • C. Joining a JLG
  • D. Developing a savings track record
SHGs need to first demonstrate regular savings and internal lending discipline before becoming eligible for bank credit linkage.

8. In the Joint Liability Group (JLG) model, the main objective is:

  • A. To provide collateral-free loans to small and tenant farmers
  • B. To replace SHGs with bigger institutions
  • C. To finance large corporates collectively
  • D. To fund only registered NGOs
JLGs allow small groups of farmers and landless workers to access loans without collateral, as all members are jointly liable for repayment.

9. As per RBI regulations, a Microfinance Institution (MFI) must ensure that the loan repayment installment of a borrower does not exceed what percentage of household income?

  • A. 30%
  • B. 40%
  • C. 50%
  • D. 60%
As per RBI’s Fair Practices Code for MFIs, loan repayments should not exceed 50% of the household’s monthly income to prevent over-indebtedness.

10. Which of the following institutions regulates NBFC-MFIs in India?

  • A. NABARD
  • B. SIDBI
  • C. Ministry of Finance
  • D. Reserve Bank of India
NBFC-MFIs (Non-Banking Financial Company – Microfinance Institutions) are regulated by the Reserve Bank of India under the NBFC framework.

11. Bank loans to Microfinance Institutions (MFIs) for on-lending to SHGs/JLGs qualify as:

  • A. Priority Sector Lending
  • B. Non-Priority Sector Lending
  • C. Commercial Lending
  • D. Corporate Social Responsibility
Bank finance to MFIs for on-lending to eligible borrowers under SHGs and JLGs is treated as Priority Sector Lending under the ‘Agriculture and Allied Activities’ and ‘Weaker Sections’ categories.

12. As per RBI guidelines, which of the following is NOT a qualifying activity under Priority Sector Lending (PSL)?

  • A. Loans to SHGs
  • B. Loans to MFIs for on-lending
  • C. Loans for luxury housing
  • D. Loans to JLGs
Luxury housing loans are not considered under PSL. PSL mainly includes agriculture, MSME, weaker sections, renewable energy, and microfinance.

13. According to RBI’s Microfinance Loan Directions, 2022, a microfinance loan is defined as a loan given to a household having an annual income up to:

  • A. ₹2.5 lakh
  • B. ₹3 lakh
  • C. ₹1.5 lakh
  • D. ₹5 lakh
As per RBI Directions, 2022, a loan is classified as a microfinance loan if the household’s annual income does not exceed ₹3,00,000.

14. Under RBI Directions, 2022, what is the maximum permissible loan repayment obligation for a household availing microfinance loans?

  • A. 30% of household income
  • B. 40% of household income
  • C. 45% of household income
  • D. 50% of household income
RBI mandates that the repayment obligations of a household under microfinance loans should not exceed 50% of its monthly household income.

15. As per RBI’s Microfinance Loan Directions, 2022, which of the following conditions must MFIs follow?

  • A. Mandatory collateral for loans
  • B. Minimum interest rate fixed by RBI
  • C. Transparent pricing and no prepayment penalty
  • D. Loans only through SHGs
RBI’s 2022 Directions emphasized borrower protection: transparent pricing, no collateral requirement, no prepayment penalty, and fair recovery practices.

16. As per RBI’s Fair Practices Code, which of the following is prohibited for NBFC-MFIs while granting loans?

  • A. Explaining terms in the local language
  • B. Charging collateral for microfinance loans
  • C. Informing borrowers about interest rates
  • D. Providing repayment schedule to borrowers
NBFC-MFIs are not allowed to take collateral for microfinance loans. Loans are extended without collateral to ensure financial inclusion.

17. According to the Fair Practices Code, NBFC-MFIs must provide borrowers with:

  • A. Only a loan sanction letter
  • B. Only repayment schedule
  • C. Only interest certificate
  • D. A loan card containing key details
NBFC-MFIs must issue a loan card to each borrower, containing details like loan amount, interest rate, repayment schedule, grievance redressal mechanism, etc.

18. Under RBI guidelines, NBFC-MFIs are required to display which of the following at their branches?

  • A. List of SHGs linked
  • B. Government subsidies available
  • C. Effective rate of interest and grievance redressal details
  • D. Branch manager’s personal contact number
As per Fair Practices Code, NBFC-MFIs must clearly display the effective interest rate, terms, and grievance redressal contact details at all their branches.

19. What is mandated under RBI’s Fair Practices Code with respect to recovery of loans by NBFC-MFIs?

  • A. Recovery should be done in a non-coercive manner
  • B. Recovery agents can use any method for faster recovery
  • C. Collateral should be seized immediately on default
  • D. Recovery can be done only through SHG leaders
RBI directs NBFC-MFIs to follow non-coercive, transparent recovery practices ensuring borrower dignity and avoiding harassment.

20. Which of the following is a key borrower protection measure under RBI’s Fair Practices Code for NBFC-MFIs?

  • A. Loans only through government subsidy
  • B. Charging compound interest
  • C. Imposing prepayment penalties
  • D. No prepayment penalty and full transparency in pricing
RBI ensures borrower-friendly practices by prohibiting prepayment penalties and mandating transparent disclosure of interest rates and charges.

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