rbi: RBI: All micro-loans must be unsecured

MUMBAI: The RBI has said it is proposing to make microcredit unsecured, not only for microfinance institutions (MFIs) but for all lenders. This follows the adoption by non-MFIs of severe collection measures, arbitrating the various regulations for MFIs and other lenders.
In his inaugural address at the Sa-Dhan National Conference on “Revitalizing Financial Inclusion,” RBI Vice Governor Rajeshwar Rao said current regulations have created an unfair playing field. . “The current regulatory framework, which was put in place with the objective of making credit accessible to low-income households and protecting borrowers from harsh collection practices by lenders, is only applicable to NBFC-MFIs. While other lenders, who now have a share of around 70% in the microfinance portfolio, are not subject to similar regulatory conditions, ”he said.
Rao urged lenders to be careful not to copy the big ones because microcredit has a social purpose. “Prioritizing profitability over the social and welfare goals of microfinance may not be optimal. Lenders should remain aware that balance sheet growth should not be built by compromising prudent conduct, ”he said.
Rao pointed out that borrowers who take out microloans do not have the type of collateral preferred by lenders. However, he noted, lenders always take back what little collateral they have for the pledge. “It’s more about encouraging repayments than recovering losses. Therefore, it was proposed to extend the unsecured nature of microfinance loans, applicable to NBFC-MFIs, to all lenders in the microfinance space. ”

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