NEWS

Reserve Bank of India (RBI) allowed Microfinance Institutions(MFI) the freedom to set interest rates they charge borrowers

DETAILS

NEW DEFINITION OF A MICROFINANCE LOAN  

• Loan that indicate a collateral-free loan given to a household having annual income of up to Rs. 3 lakh
• Earlier limit – Rs.1.2 lakh for rural borrowers and Rs.2 lakh for urban borrowers

WHO ARE COVERED

• All Commercial Banks (excluding Payments Banks) and Urban Cooperative banks
• All Non-Banking Financial Companies including Microfinance Institutions and Housing Finance Companies

OTHER DETAILS

• Guidelines will take effect on April 1
• Regulated Entities (REs) should put in place a board-approved policy regarding
  • pricing of microfinance loans
  • ceiling on interest rate
  • all other charges applicable to microfinance loans
  • disclose pricing-related information to a prospective borrower
  • change in interest rate or any other charge shall be informed to the borrower well in advance
• Can penalty be imposed – shall be applied on the overdue amount and not on the entire loan amount

What is a Microfinance Institution – Organization that offers financial services to low income populations. These services include microloans, micro savings and micro insurance