Examkin

Question

Difficulty: MediumNon-Bank Financial Institutions and Traditional Financial Systems

A licensed Pension Fund Administrator (PFA) mobilizes substantial long-term retirement savings from workers across various formal organizations in Nigeria. Which operational feature strictly distinguishes this non-bank financial institution from commercial banks?

  1. Inability to accept demand deposits and operate cheque-clearing accounts for the general publicAnswer
  2. B
    Legal prohibition from investing pooled subscriber funds into long-term capital market securities
  3. C
    Direct authority to issue quantitative monetary policy instruments to control money supply
  4. D
    Immediate transfer of legal ownership of managed assets to individual contributors upon initial agreement

Answer

Inability to accept demand deposits and operate cheque-clearing accounts for the general public
Non-bank financial institutions (NBFIs), such as Pension Fund Administrators, insurance firms, and building societies, specialize in long-term capital mobilization, risk management, and savings pooling. The primary feature separating them from commercial banks is that NBFIs are prohibited from accepting demand deposits and operating cheque-clearing systems.

Step-by-Step Solution

1
Identify the financial institution class referenced in the stem.
Pension Fund Administrators (PFAs) are non-bank financial institutions established to handle long-term retirement savings.
Understanding the institution type clarifies its institutional scope and statutory boundaries.
2
Distinguish between non-bank financial institutions and commercial banking institutions.
Commercial banks accept demand deposits, create credit, and participate in the central cheque-clearing system, whereas non-bank financial institutions cannot provide checking services or demand deposit creation.
Demand deposit creation and cheque clearing are core banking privileges restricted from non-bank financial institutions.

Key Concept

Operational Boundaries of Non-Bank Financial Institutions
Estimated Time:1m 0s
Rate this question

Topics

Non-Bank Financial Institutions and Traditional Financial Systems