Microfinance Institutions : RBI:
The Reserve Bank of India (RBI) proposed to lift the interest rate cap on Microfinance Institutions (MFIs), and said all micro loans should be regulated by a common set of guidelines irrespective of who gives them.
- RBI has suggested a common definition of microfinance loans for all regulated entities.
- Microfinance loans should mean collateral-free loans to households with annual household income of Rs 1,25,000 and Rs 2,00,000 for rural and urban/semi urban areas, respectively.
- For this purpose, ‘household’ means a group of persons normally living together and taking food from a common kitchen.
- RBI has mooted capping the payment of interest and repayment of principal for all outstanding loan obligations of the household as a percentage of the household income, subject to a limit of maximum 50%.
- Non-banking Financial Company (NBFC)-MFIs, like any other NBFC, shall be guided by a board-approved policy and the fair practices code, whereby disclosure and transparency would be ensured.
- There would be no ceiling prescribed for the interest rate. There would be no collateral allowed for micro loans.
- There can be no prepayment penalty, while all entities have to permit the borrowers to repay weekly, fortnightly or monthly instalments as per their choice.