Mumbai, Mar 14 (PTI) The microfinance industry on Monday welcomed the revised directions for microfinance loans issued by the Reserve Bank of India (RBI) and said the harmonised regulations will usher in a new era, bring in uniformity and provide a level playing field in the sector. In February last year, RBI had announced that it will review the regulatory framework for microfinance.
In June 2021, a consultative document harmonising the regulatory frameworks for various regulated lenders in the microfinance space was issued for public comments. Based on the feedback, RBI on Monday put in place the directions for microfinance loans. As per the new directions, microfinance lenders cannot charge usurious rate of interest from borrowers. The RBI also asked them to put in place a ceiling on pricing of loans and related fees. “Extremely comprehensive, the harmonized regulations will usher in a new era/beginning for the microfinance sector where a common regulatory framework will be applicable to all Regulated Entities (REs) of the RBI,” Microfinance Institutions Network (MFIN) CEO and Director Alok Misra said.
Misra said besides creating a level playing field, the framework will address issues of over indebtedness and multiple lending which were of paramount concerns for the sector. Sa-Dhan Executive Director P Satish said, “We are pleased with the newly released Master Direction of the RBI on Regulatory Framework for Microfinance Loans, as this lender agnostic comprehensive regulation will bring uniformity in the sector.” A microfinance loan is defined as a collateral-free loan given to a household having annual household income up to Rs 3,00,000. For this purpose, the household shall mean an individual family unit, that is husband, wife and their unmarried children, RBI said.
As per the new directions, all regulated entities in the microfinance space shall put in place a board-approved policy regarding pricing of loans and the pricing related information should be disclosed to prospective borrower in a standardised simplified factsheet. Any fees to be charged to the microfinance borrower by the regulated entities and/or its partner/agent shall be explicitly disclosed in the factsheet, the direction said.
The RBI also said that any change in interest rate or any other charge shall be informed to the borrower well in advance and these changes shall be effective only prospectively. The REs shall have a board-approved policy to provide the flexibility of repayment periodicity on microfinance loans as per borrowers’ requirement.
Bandhan Bank MD and CEO Chandra Shekhar Ghosh said the guidelines will further help deepen the penetration of microcredit in the country, which has helped millions of Indians live a life of dignity and economic independence through access to formal financial services. “The latest guidelines are a strong reflection of the maturity that the microcredit industry has reached in India; and it will help harmonize the regulatory framework for different types of lenders, encourage healthy competition and enable customers to make an informed choice regarding their credit needs,” Ghosh said. CreditAccess Grameen’s MD and CEO Udaya Kumar Hebbar said the revision of the income cap to Rs 3 lakh will expand the market opportunity and interest rate cap removal will promote risk-based underwriting. The new regulations will pave the way for increased competitiveness and a level playing field to further help fortify the Indian microfinance industry’s position as the largest microfinance market in the world, he added.
Hebbar said increasing the qualifying asset limit to a maximum of 25 per cent will allow institutions to achieve a more balanced lending portfolio, reduce the cyclicity and volatility impact on the balance sheet, and strengthen the ability of institutions to weather any external risks. PTI HV ABM ABM
