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Microfinance Institutions : RBI

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.

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