Malegam panel caps MFI lending rate at 24% | india | Hindustan Times
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Malegam panel caps MFI lending rate at 24%

The Reserve Bank of India (RBI) sub-committee on micro finance institutions (MFIs), headed by YH Malegam, has recommended a 24% ceiling on the rate of interest that can be charged on individual loans.

india Updated: Jan 20, 2011 22:32 IST
HT Correspondent

The Reserve Bank of India (RBI) sub-committee on micro finance institutions (MFIs), headed by YH Malegam, has recommended a 24% ceiling on the rate of interest that can be charged on individual loans.

It has also proposed the creation of a new category, NBFC-MFI (NBFCs operating in the microfinance sector), that will be accorded ‘priority lending’ status for loans.

The sub-committee, set up in October 2010 by RBI to study the issues dogging the microfinance sector, submitted its report here on Wednesday.

The report has recommended an average margin cap of 10% for those having a loan portfolio of R100 crore and 12% for smaller ones.

The sub-committee has maintained that only those will qualify who predominantly offer services to low-income borrowers for small loan amounts and for short tenures on an unsecured basis, mainly for income-generating activities, should be included in the proposed NBFC-MFI category.

The lenders should hold not less than 90% of their total assets (other than cash and bank balances and money market instruments) in the form of qualifying assets. Their annual family income should not be more than R50,000 and the ceiling for a single borrower should be Rs 25,000.

Also, at least 75% of the loans given by the MFI should be for income-generating purposes.

In the interest of transparency, the report has proposed that an MFI can levy only three charges — processing fee, interest and insurance charge.

Other than this the sub-committee has also recommended steps to mitigate the problems of multiple-lending, over borrowing, ghost borrowers and coercive methods of recovery.

It has suggested that a borrower can be a member of only one self help group (SHG) and not more than two MFIs can lend to a single borrower. It has also recommended the setting up of a Credit Information Bureau.