Reserve Bank of India (RBI) recently released a Consultative Document on Regulation of Microfinance.
- It has been released for harmonizing the regulatory frameworks for various regulated lenders in the microfinance space.
- The key proposals of the Consultative Document are enumerated below:
- 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.
- Introduction of a standard simplified fact sheet on the pricing of microfinance loans for better transparency.
- No pre-payment penalty; no requirement of collateral; and greater flexibility of repayment frequency for all microfinance loans.
- Alignment of pricing guidelines for the non-banking financial company – micro finance institutions (NBFC-MFIs) with guidelines for NBFCs.
- Display of minimum, maximum and average interest rates charged on microfinance loans on the websites of regulated entities.