Rating agencies have opined that the new regulatory regime for micro financiers, wherein the cap on interest they could charge on borrowers has been freed up, will acquire the industry under regulatory coverage however will lead to increased credit cost for borrowers.
The Reserve Bank on Monday issued master directions on the regulatory framework for microfinance lenders which expands on the consultation paper gave regarding the matter on June 14, 2021. The revised framework is pertinent from April 2022 and it makes the guidelines lenders agnostic as it is relevant to all the RBI-regulated entities involved with microfinancing.
The updated guidelines mean to give a level battleground to every one of the players engaged with microfinancing, which will assist these lenders to benefit from greater flexibility in loan pricing.
Icra Ratings in a note noted that though loan pricing freedom is good in terms of margins, the increased permissible indebtedness poses a risk of overleveraging borrowers.
In a note, India Ratings said the ability of small and average-sized MFIs to carry out risk-based estimating will enable them to build both scales as well as operating buffers, resulting in improved creditworthiness in the eyes of lenders.