Reserve Bank of India removes pricing caps for microfinance lenders

15 Mar 2022 , 01:46 PM

The Reserve Bank of India (RBI) on Monday has removed caps on the pricing of small loans given by non-banking financial company-microfinance institutions (NBFC-MFIs). The central bank has increased eligibility criteria for microfinance loans to a household having an annual income of up to Rs3 lakh while removing the interest rate cap on such loans. It has also asked all lenders to put in place a board-approved policy on pricing.

In the final guidelines for microfinance loans, the RBI said that it will scrutinise the rates charged by the lenders so that they do not charge usurious rates, and has asked the lenders to put in place a ceiling on pricing of loans and related fees.

All microfinance lenders must now put in place a board-approved policy for the pricing of loans, according to the directions issued on Monday.

The microfinance institutions are required to disclose pricing-related information to a prospective borrower in a standardised simplified fact sheet.

Further, the RBI has asked the lenders to prominently display the minimum, maximum, and average interest rates charged on loans in all its offices, in the literature issued by them, and details on its website.