<p>Microfinance lenders cannot charge usurious rate of interest from borrowers, the Reserve Bank said on Monday, and also asked them to put in place a ceiling on pricing of loans and related fees.</p>.<p>A microfinance loan is defined as a collateral-free loan given to a household having an annual income of up to Rs 3 lakh.</p>.<p>Issuing 'Master Direction – Reserve Bank of India (Regulatory Framework for Microfinance Loans) Directions, 2022', RBI said all regulated entities (REs) should put in place a board-approved policy regarding pricing of microfinance loans, covering, a ceiling on the interest rate and all other charges applicable to microfinance loans.</p>.<p>"Interest rates and other charges/ fees on microfinance loans should not be usurious. These shall be subjected to supervisory scrutiny by the Reserve Bank," the framework said.</p>.<p>Also, each RE has to disclose pricing-related information to a prospective borrower in a standardised simplified factsheet.</p>.<p>"Any fees to be charged to the microfinance borrower by the RE and/ or its partner/agent shall be explicitly disclosed in the factsheet. The borrower shall not be charged any amount which is not explicitly mentioned in the factsheet," it added.</p>.<p>Also, there should be no pre-payment penalty on microfinance loans.</p>.<p>"Penalty, if any, for delayed payment shall be applied on the overdue amount and not on the entire loan amount," the RBI said.</p>.<p>Regarding limit on loan repayment obligations of a household, it said each RE should have a board-approved policy regarding the limit on the outflows on account of repayment of monthly loan obligations of a household as a percentage of the monthly household income.</p>.<p>"This shall be subject to a limit of maximum 50 per cent of the monthly household income," it said.</p>.<p>There should also be a standard form of loan agreement for microfinance loans in a language understood by the borrower.</p>.<p>Under the earlier guidelines, an NBFC that does not qualify as a Non-banking Financial Company - Microfinance Institution (NBFC-MFI), cannot extend microfinance loans exceeding 10 per cent of its total assets.</p>.<p>The maximum limit on microfinance loans for such NBFCs (NBFCs other than NBFC-MFIs) now stands revised at 25 per cent of the total assets. </p>.<p><strong>Check out DH's latest videos:</strong></p>
<p>Microfinance lenders cannot charge usurious rate of interest from borrowers, the Reserve Bank said on Monday, and also asked them to put in place a ceiling on pricing of loans and related fees.</p>.<p>A microfinance loan is defined as a collateral-free loan given to a household having an annual income of up to Rs 3 lakh.</p>.<p>Issuing 'Master Direction – Reserve Bank of India (Regulatory Framework for Microfinance Loans) Directions, 2022', RBI said all regulated entities (REs) should put in place a board-approved policy regarding pricing of microfinance loans, covering, a ceiling on the interest rate and all other charges applicable to microfinance loans.</p>.<p>"Interest rates and other charges/ fees on microfinance loans should not be usurious. These shall be subjected to supervisory scrutiny by the Reserve Bank," the framework said.</p>.<p>Also, each RE has to disclose pricing-related information to a prospective borrower in a standardised simplified factsheet.</p>.<p>"Any fees to be charged to the microfinance borrower by the RE and/ or its partner/agent shall be explicitly disclosed in the factsheet. The borrower shall not be charged any amount which is not explicitly mentioned in the factsheet," it added.</p>.<p>Also, there should be no pre-payment penalty on microfinance loans.</p>.<p>"Penalty, if any, for delayed payment shall be applied on the overdue amount and not on the entire loan amount," the RBI said.</p>.<p>Regarding limit on loan repayment obligations of a household, it said each RE should have a board-approved policy regarding the limit on the outflows on account of repayment of monthly loan obligations of a household as a percentage of the monthly household income.</p>.<p>"This shall be subject to a limit of maximum 50 per cent of the monthly household income," it said.</p>.<p>There should also be a standard form of loan agreement for microfinance loans in a language understood by the borrower.</p>.<p>Under the earlier guidelines, an NBFC that does not qualify as a Non-banking Financial Company - Microfinance Institution (NBFC-MFI), cannot extend microfinance loans exceeding 10 per cent of its total assets.</p>.<p>The maximum limit on microfinance loans for such NBFCs (NBFCs other than NBFC-MFIs) now stands revised at 25 per cent of the total assets. </p>.<p><strong>Check out DH's latest videos:</strong></p>