MICROCAPITAL BRIEF: Reserve Bank of India (RBI) Easing Regulations to Allow Microfinance Institutions (MFIs) to Loan up to $1,600 to Borrowers Earning up to $2,500

microfinance regulations in india

The Reserve Bank of India (RBI), the central banking authority of the country, recently announced that it raised the limit on the total of all loans disbursed by microfinance institutions (MFIs) to a single borrower from INR 50,000 (USD 790) to INR 100,000 (USD 1,600). RBI is also raising the ceiling on the household income of rural microfinance borrowers from INR 60,000 (USD 950) to INR 100,000 (USD 1,600). The maximum income for microfinance borrowers in urban and semi-urban areas also was raised from INR 120,000 (USD 1,900) to INR 160,000 (USD 2,500).

Alok Prasad, Chief Executive Officer of the Microfinance Institutions Network, was quoted as saying, “The move by RBI to raise lending limits for MFIs is a very positive development. Much needed, but even greater loosening up is necessary. Previously, microfinance companies had to turn away many borrowers because they could not serve them fully under the limitations that the regulations had put. The industry is well poised to serve the wide spectrum of the ‘unfunded’ world, where credit demand ranges between INR 50,000 (USD 790) to around INR 2 million (USD 32,000)” [1].

By Jeff Pierce, Research Associate

About Reserve Bank of India (RBI)

Reserve Bank of India (RBI) is India’s central banking authority. Established in 1935, RBI undertakes consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies (NFBCs). The current focus of RBI is to supervise financial institutions, consolidate accounting standards, resolve legal issues in cases of banking fraud, monitor non-performing assets and supervise the rating model for the banking sector. In 1979, the National Bank for Agriculture and Rural Development (NABARD) was formed at the behest of RBI to provide regulatory oversight to regional rural banks (RRBs) and to promote the development of agricultural lenders: tasks that had been the responsibility

of RBI. While non-banking financial companies such as for-profit microfinance institutions operate under RBI regulations, the responsibility for inspecting agricultural lenders, RRBs, state cooperative banks, district central cooperative banks and state cooperative agricultural and rural development banks was transferred to NABARD. RBI maintains these responsibilities for for-profit MFIs. Although RBI was originally the parent organization of NABARD and until October 2010 held a 72.5-percent stake in the organization, RBI owns a 0.5-percent stake in NABARD. In May 2015, legislation was introduced to allow RBI to sell its remaining stake in NABARD.

About Microfinance Institutions Network (MFIN)

The Microfinance Institutions Network (MFIN) is a trade association of 47 Indian microlenders that operate as non-banking finance companies. MFIN has received support from the Omidyar Network, a US-based philanthropic investment firm, and the International Finance Corporation (IFC), the private investment arm of the US-based World Bank Group. MFIN has been recognized by the Reserve Bank of India (RBI) as a self-regulatory organization meaning that MFIN oversees the operations of its members under the regulatory framework of RBI.

About Sa-Dhan

Founded in 1999, Sa-Dhan is an Indian association of community development finance institutions in India. As of 2014, Sa-Dhan reports 240 members. As a self-regulatory organization, Sa-Dhan is expected to oversee its members under the regulatory framework provided by the RBI.

Sources and Additional Resources:

[2] Reserve Bank of India: “Non-Banking Financial Company-Micro Finance Institutions (NBFC-MFIs) – Directions – Modifications,” http://rbidocs.rbi.org.in/rdocs/notification/PDFs/544CRLMFIA070415.pdf

[3] MicroCapital Story, April 28, 2015, “MICROCAPITAL BRIEF: Reserve Bank of India (RBI) Grants Self-Regulatory Organization (SRO) Status to Indian Microfinance Network Sa-Dhan,” http://www.microcapital.org/microcapital-brief-reserve-bank-of-india-rbi-grants-self-regulatory-organization-sro-status-to-indian-microfinance-network-sa-dahn/

MicroCapital Universe Profile: Reserve Bank of India

MicroCapital Universe Profile: Microfinance Institutions Network

MicroCapital Universe Profile: Sa-Dhan

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Source: www.microcapital.org

Category: Payday loans

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