The Reserve Bank of India (RBI) on March 14 allowed microfinance institutions to fix interest rates on loans, with a caveat that the rates should not be usurious.
More facts
- The RBI tweaked the definition of a microfinance loan to indicate a collateral-free loan given to a household with annual income of up to Rs 3 lakh. Earlier, the upper limits were Rs 1.2 lakh for rural borrowers and Rs 2 lakh for urban borrowers.
- The revised guidelines will take effect on April 1, 2022.
- As per the revised norms, regulated entities (REs) should put in place a Board-approved policy regarding pricing of microfinance loans, a ceiling on interest rate and all other charges applicable to microfinance loans.
- All entities, banks, non-banking financial companies (NBFCs), and microfinance institutions (MFIs) are subject to the same regulations.
- The previously put cap on the number of entities lending to one borrower has also been removed. The rule that said monthly loan repayment outflows cannot exceed 50 percent of the monthly household income, however, has been retained.
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