MFI loan framework: All entities, banks, 7 NBFC-MFIs brought under similar rules

Representative image: Source: Reuters

The Reserve Bank of India (RBI), on March 14, issued the Framework for Microfinance Loans, which ensures that entities including banks and seven NBFC-MFIs have been brought under similar regulation.

RBI has also defined a microfinance loan as a 'collateral-free' loan given to a household having annual household income up to Rs 3 Lakh. Previously, the urban huousehold income limit was kept at Rs 2 lakh, and the rural was Rs 1.6 lakh.

The latest regulation also says that all collateral-free loans, irrespective of end use, provided to low-income households, shall be considered as microfinance loans.

Issuing 'Master Direction Reserve Bank of India (Regulatory Framework for Microfinance Loans) Directions, 2022', RBI said all regulated entities (REs) should put in place a board-approved policy regarding pricing of microfinance loans, covering, a ceiling on the interest rate and all other charges applicable to microfinance loans.

Also, each RE has to disclose pricing-related information to a prospective borrower in a standardised simplified factsheet. "Any fees to be charged to the microfinance borrower by the RE and/ or its partner/agent shall be explicitly disclosed in the factsheet. The borrower shall not be charged any amount which is not explicitly mentioned in the factsheet," it added.

The maximum limit on microfinance loans for such NBFCs (NBFCs other than NBFC-MFIs) now stands revised at 25 per cent of the total assets.