RBI unveils harmonised framework for Microfinance institutions

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RBI unveils harmonised framework for Microfinance institutions

Recently Reserve Bank of India has issued “Regulatory Framework for Microfinance Loans) Directions, 2022.

These guidelines have been issued under the following:

  • Banking Regulation Act, 1949,
  • Reserve Bank of India Act, 1934, and
  • National Housing Bank Act, 1987

These guidelines will be applicable to the following regulated entities:

  • all commercial banks except payment banks;
  • all primary (urban) co-operative banks/state and district central co-operative banks; and all Non-Banking Financial Companies (NBFCS)

Have a look at these guidelines:

  • Microfinance institutions (MFIs) have been given the freedom to set interest rates. However, the interest rates charged by MFIs should not be too high or unreasonable.
  • The minimum requirement of ‘micro finance credit’ for NBFC-MFIs has been revised to 75 per cent of the total assets.
  • Earlier, NBFC-MFIs were required to hold a minimum of 85 per cent of their total assets as “qualifying assets”. Now the definition of “qualifying asset” of NBFC-MFIs has been merged with the definition of “microfinance loans”.
  • Every regulated institution shall have a board approved policy for the pricing of microfinance loans.
  • The interest rates and other tariffs/fees to be levied on micro finance loans will be subject to the supervision of RBI.
  • Prepayment penalty will not be levied for premature repayment of micro finance loans. In case of delay in repayment of loans, penalty will be levied only on the outstanding amount and not on the entire loan amount.

About Microfinance

  • Microfinance is a type of financial service. Under this, small loans and other financial services are provided to poor and low-income families.
  • It is a means of promoting financial inclusion.
  • As per extant RBI instructions: All collateral-free loans extended to households with annual income up to Rs.3 lakh will be treated as micro finance loans.

Source – The Hindu

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