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RBI drops pricing curbs on Microfinance loans

March 16, 2022

RBI drops pricing curbs on Microfinance loans
The Reserve Bank of India on Monday, March 14, announced that it will remove price caps on microfinance loans given by any financial institution. The central bank additionally said in a notification that this lender cannot charge a usurious rate of interest from the borrower.

After the RBI’s revision, a micro finance loan will be defined as a collateral-free loan given to a family having an annual household income of up to ₹3,00,000. Right now, a microfinance loan is defined as the collateral-free loan given to a borrower whose family pay doesn’t surpass ₹1,25,000 for rural areas, and ₹2,00,000 for semi-urban and urban areas.
 
“All collateral-free loans, irrespective of end-use and mode of application/processing/disbursal (either through physical or digital channels), provided to low-income households, i.e., households having annual income up to ₹3,00,000, will be considered as microfinance loans,” the national bank said giving the Master Direction Reserve Bank of India (Regulatory Framework for Microfinance Loans) Directions, 2022′.
 
“The meaning of microfinance credits for ‘not for benefit’ organizations (enrolled under Section 8 of the Companies Act, 2013) is now aligned with the revised definition of microfinance loans viz., collateral-free loans to households with annual family pay to ₹3,00,000, gave the monthly loan obligations of a family doesn’t exceed 50% of the monthly household income,” the bank further said.
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