Non-banking financial company-microfinance institutions (NBFC-MFIs) in India may set their own interest rates freely now that the Reserve Bank of India (RBI) has repealed the ceilings that previously applied to microlending rates. In the interest of client protection, however, lenders may no longer charge a penalty fee in cases of prepayment, and client repayments may not exceed half of household income. Meanwhile, RBI has increased the maximum annual household income to qualify for a microfinance loan by 50 percent to INR 300,000 (USD 3,930).
Additional flexibility for NBFC-MFIs stems from RBI increasing the portion of non-microfinance assets that the organization may hold from 15 percent to 25 percent. For NBFCs that are not MFIs, the allowable portion of microfinance assets is now 25 percent, up from 10 percent of total holdings.
Alok Misra, CEO of the 42-member Microfinance Institutions Network, reportedly said, “Besides creating a level playing field [for microlenders vis-a-vis other lenders]… Revision of household income is a very progressive move with far-reaching implications… taking us closer to our financial inclusion goal.”
Established in 1935, RBI performs consolidated supervision of commercial banks, NBFIs and other financial institutions. It also manages accounting standards, resolves cases of banking fraud, monitors non-performing assets and supervises the rating model for the banking sector.
By Sheen Gupta, Research Associate
Sources and Additional Resources
Mint article
https://www.livemint.com/industry/banking/rbi-removes-pricing-caps-for-microfinance-lenders-11647285373311.html
RBI homepage
https://www.rbi.org.in/
Previous MicroCapital article on RBI
https://www.microcapital.org/microcapital-brief-rbi-proposes-reforms-including-debt-income-ratio-cap-repeal-of-interest-rate-ceiling-for-microfinance-institutions-in-india/
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