RBI Microfinance Loan: The Reserve Bank on Monday released a Uniform Regulatory Framework for the microfinance sector, in which a number of proposals have been made, such as removing the interest rate cap for the sector and no penalty on loan prepayment.
New Delhi: RBI Microfinance Loan: The Reserve Bank on Monday released a Uniform Regulatory Framework for the microfinance sector, in which a number of proposals have been made, such as removing the interest rate cap for the sector and no penalty on loan prepayment. The Reserve Bank has issued a consultative document for this. The Reserve Bank has given time till July 31 to banks, NBFCs-MFIs, industry associations and other stakeholders to give their comments and suggestions.
‘There will be no interest rate cap for microfinance’
For regulation of the microfinance sector, Non-Banking Finance Companies (NBFCs) and Microfinance Institutions (MFIs) like any other NBFC will be governed by a board approved policy and fair practice code, ensuring disclosure and transparency. There will be no cap on interest rates. However, the lenders will ensure that unnecessarily exaggerated interest is not charged. RBI said that our objective should be to strengthen the market mechanism to bring down the interest rates for the entire microfinance sector.
More flexibility to repay the loan
Microfinance provides small loans and financial services to poor and low-income families. At present, the regulatory framework of the Reserve Bank applies only to NBFC-MFIs, while the rest of the lenders, which account for about 70 per cent of their microfinance portfolio, are currently not subject to these regulatory conditions. The Reserve Bank has also proposed higher frequency of repayment of microfinance loans and no collateral required. According to the consultation paper, a microfinance means providing collateral free loans to households with an annual income of Rs 1.25 lakh in rural areas and Rs 2 lakh in urban areas.
No penalty on prepayment
The RBI’s consultation paper states that as a part of customer protection, microfinance borrowers of all regulated entities (REs) will be entitled to prepayment and will not be penalized for the same, as in the case of NBFC-MFIs. . All regulated entities will have a board approved policy which will give the flexibility to microfinance borrowers to repay the loan as per their requirement.
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