The Reserve Bank of India Proposes Regulation on the Micro-Finance Sector

Date Published 5/15/2011
Author Marja Hoek-Smit
Country India

The Reserve Bank of India accepted “the broad framework of regulations recommended by the (Malegam) Committee” in its Monetary Policy Statement 2011-12. The Malegam Committee was established to make recommendations on regulating the micro-finance sector in the wake of the Andhra Pradesh micro-finance crisis. The RBI has relaxed some of the recommended pricing and market conduct rules proposed by the committee. The rate pricing and margin caps and income limits it decided upon are as follows.
It was further decided to regulate microfinance sector as a separate category. Bank credit to Micro Finance Institutions  “extended on, or after, April 1, 2011 for on-lending to individuals and also to members of SHGs / JLGs will be eligible for categorization as priority sector advance under respective categories viz., agriculture, micro and small enterprise, and micro credit  (for other purposes), as indirect finance, provided not less than 85% of total assets of MFI (other than cash, balances with banks and financial institutions, government securities and money market instruments) are in the nature of “qualifying assets”.  In addition, aggregate amount of loan, extended for income generating activity, is not less than 75% of the total loans given by MFIs.”

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