The Reserve Bank of India (RBI) on Monday allowed microfinance institutions the freedom to set interest rates they charge borrowers, with a caveat that the rates should not be usurious.
In revised guidelines for microfinance loans, which will take effect April 01, 2022, the RBI revised the definition of a microfinance loan to indicate a collateral-free loan given to a household having annual income of up to ₹3 lakh. Earlier, the upper limits were ₹1.2 lakh for rural borrowers and ₹2 lakh for urban borrowers.
As per the revised norms, regulated entities (REs) should put in place a board-approved policy regarding pricing of microfinance loans, a ceiling on interest rate and all other charges applicable to microfinance loans.
