Indian Central Bank Modifies Rules Governing Non-Bank Financial Company - Micro-Finance Institutions

Date Published 8/7/2012
Author Reserve Bank of India
Country India

On December 2, 2011, the Reserve Bank of India issued a regulatory framework governing Non-Banking Financial Company - Micro Finance Institutions- a new category of financial institution. In light of comments received about the difficulties in complying with the framework, certain modifications were made including:

-Changes in the calculation of net-owned funds and in the criteria for Qualifying Assets

-An easing of the requirement that income generation activities should constitute 75 percent of total loans to 70 percent (leaving 30 percent for other purposes including house repair, etc.)

-Clarification that a borrower or group cannot borrow from more than 2 MFIs

-Affirmation that rules on maximum debt exposure of Rs. 50,000 or roughly USD 1,000 remain in place

-Lifting of the interest cap of 26 percent in favor of a maximum variance of 4 percent between maximum and minimum rates on individual loans and a cap on margins of 10 to 12 percent In addition all MFIs need to adhere to the Fair Practice Code issues by the RBI on July 2, 2012.

[Link to modified regulation]

[Link to December 2011 regulation article]

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