Some MFIs, banks need more time to comply with RBI framework

The RBI wants all regulated entities to put in place a board-approved policy regarding pricing of microfinance loans.

Some banks and microfinance institutions (MFIs) may seek more time from the Reserve Bank of India (RBI) to comply with the latest framework issued by the central bank. The 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.

Issuing 'Master Direction Reserve Bank of India (Regulatory Framework for Microfinance Loans) Directions, 2022', the 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.

"A few want a month or two to operationalise some parts of the guidelines, especially putting in place board-approved policies and operationalising them," said P Satish, executive director, Sa-Dhan.

Sa-Dhan, on March 17, organised a meeting of various microfinance stakeholders to discuss the latest RBI framework.

Also, the meeting raised concerns on whether the centrality of women as a microfinance focus will be diluted given the focus on the household. The members sought more clarity on the composition of qualifying assets in microfinance.

The central bank 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 household 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.

Also, each regulated entity 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 percent of the total assets.