Consultative document on MFI regulation

Reported by: |Updated: June 18, 2021

The Reserve Bank of India has released a Consultative Document on Regulation of Microfinance to receive feedback from stakeholders on a suggested framework for MFIs. The document is intended to be made applicable to the microfinance loans and is aimed at protecting the microfinance borrowers from over-indebtedness as well as enabling competitive forces to bring down the interest rates by empowering the borrowers to make an informed decision. The key proposals in the document are: a common definition of microfinance loans for all regulated entities; capping the outflow on account of repayment of loan obligations of a household to a percentage of the household income; a board approved policy for household income assessment; no pre-payment penalty; no requirement of collateral; greater flexibility of repayment frequency for all microfinance loans etc. Banks and financial services institutions can send suggestions and comments on the document by 31 July 2021.