To regulate the functioning of microfinance institutions (MFIs), the Reserve Bank of India (RBI) has suggested a new regulatory framework for these bodies, under which it has recommended that there should be no pre-payment penalty, no requirement of collateral and greater flexibility of repayment frequency for all microfinance loans.
The central bank also aims to give a common definition of microfinance loans for all regulated entities.
These suggestions have been sent to all financial institutions by RBI in the form of a consultative document, on which their comments have been sought by July 31, 2021.
The RBI has also proposed to cap the outflow on account of repayment of loan obligations of a household to a percentage of the household income.
In addition to this, it has directed all such institutions to display minimum, maximum and average interest rates charged on microfinance loans, on the websites of regulated entities.
Also the RBI has proposed that a Board approved policy for household income assessment should be in place.
Another suggestion is that there should be an alignment of pricing guidelines for non banking finance companies (NBFCs) and MFIs with the guidelines for NBFCs.
In order to ensure transparency, the RBI has suggested that MFIs should introduce a standard simplified fact sheet on pricing of microfinance loans.