RBI offers a uniform regulatory framework for the microfinance sector, offers “unsecured loans”
The Reserve Bank of India on Monday released a consultative paper on the regulation of microfinance institutions and proposed a uniform regulatory framework for the microfinance sector, in which MFIs can provide unsecured loans to households at interest rates. determined by the board of directors.
Microfinance is a form of financial service that provides small loans and other financial services to poor and low-income households.
Key apex bank proposals include a common definition of microfinance lending for all regulated entities, capping outflows due to the repayment of a household’s loan obligations at a percentage of household income, and a policy approved by the board of directors for the assessment of household income.
It also suggests no collateral requirement and more flexibility in repayment frequency for all microfinance loans.
According to the RBI notification, an MFI loan would mean an unsecured loan to households with an annual income of Rs 1.25 lakh in rural areas and Rs 2 lakh in urban and semi-urban centers.
“The interest rate and approach to risk gradations and the rationale for imposing different interest rates on different categories of borrowers should be disclosed to the borrower or client in the application form and communicated. explicitly in the sanction letter, “RBI said.
In CLSA’s view, RBI’s proposal on MFIs is broadly positive, further adding that previous regulations were more strictly defined for NBFC-MFIs compared to banks and small funding banks. The brokerage said taking EMI / income debt up to 50 percent is a liberal decision.
While Macquarie mentions that the regulation proposed on MFIs by RBI is much more lenient than what the market expected. He points out that an important difference in the current standard is that these rules are applicable to all regulated entities.
Currently, the loan is repayable in weekly, semi-monthly or monthly installments at the choice of the borrower. The document proposes the frequency of repayments.