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New Microfinance Lending Norms: RBI

New Microfinance Lending Norms: RBI

RBI has released new microfinance lending norms.

As per these norms:

  • All entities, banks, non-banking financial companies (NBFCs), and microfinance institutions (MFIs) are subject to the same regulations.
  • A microfinance loan is defined by the RBI as a ‘collateral-free’ loan granted to a household with an annual household income of up to Rs 3 lakh.
  • All collateral-free loans offered to low-income households, regardless of the end-use and mode of application/processing/disbursal, are considered microfinance loans.
  • The financial entities should have a board-approved policy to provide the flexibility of repayment periodicity on microfinance loans as per borrowers’ requirements. They should also have a board-approved policy for the assessment of household income.
  • Microfinance is a form of financial service which provides small loans and other financial services to poor and low-income households.
  • MFIs are financial companies that provide small loans to people who do not have any access to banking facilities.
  • The definition of “small loans” varies between countries. In India, all loans that are below Rs. 1 lakh can be considered as microloans.

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