Regulatory Framework for Microfinance Loans
Ans. The effective date of these directions is April 1, 2022. However, in view of implementation related difficulties expressed by some regulated entities (REs), REs are advised to implement these directions completely at the earliest on best effort basis, but not later than October 1, 2022.
Ans. The directions require assessment of income and indebtedness at household level. There is no requirement of treating all members of the household as applicants/ borrowers of a loan which can be provided to an individual member. Board-approved policies of REs may include the methodologies/ operational frameworks to assess income and indebtedness of all members of the household.
Ans. All collateral-free loans to individual/s belonging to low-income households, i.e., households having annual income up to ₹3,00,000 are treated as microfinance loans.
Ans. Loans backed by hypothecation of any security shall not be treated as microfinance loans.
Ans. Yes, for providing a non-microfinance loan to a low-income household (as defined under the directions), it should be ensured that the limit of 50 per cent on monthly loan repayment obligations of a household as a percentage of monthly household income is not breached. In other words, the limit of 50 per cent shall include both microfinance as well as non-microfinance loans.
Ans. Board-approved policies of REs should cover such operational aspects. One possible way could be to distribute the annualized repayment obligations over twelve months to estimate monthly outgo of the household towards debt repayment.
Ans. The insurance charges included in the factsheet are only for credit linked insurance product as these charges are linked to the microfinance loan. A borrower would not have incurred these charges if he had not taken the loan. The factsheet should contain information related to only pricing of microfinance loans to keep it uncluttered. Disclosures related to other non-credit products should be provided separately from the factsheet. All non-credit products (both financial products such as investment products, insurance products etc. as well as non-financial products such as solar lanterns, sewing machines etc.) should be provided only with the explicit consent of the borrower and REs should ensure that there is no direct or indirect linkage between the loan provided to the borrower and other non-credit products. No non-credit product shall be sold as a pre-condition for the loan product. REs should prominently display that purchase of any non-credit product by the microfinance borrowers is purely on a voluntary basis. Board-approved Fair Practices Code of the REs, should also cover this aspect.
Ans. The directions are applicable to loans sanctioned on or after April 1, 2022. Accordingly, pricing of the existing loans of NBFC-MFIs i.e., sanctioned prior to April 1, 2022 shall continue to be as per the guidelines applicable as on March 31, 2022. As other REs were already free to decide pricing of loans sanctioned, they are allowed to review and revise interest rates applicable to the existing loans also, subject to compliance with the relevant guidelines.
Ans. This clause is applicable only for recovery from borrowers having overdue loans. For other borrowers, REs can continue with the existing timing/ process for business like group meetings, collection in regular accounts, etc. as per borrowers’ convenience.
Ans. The purpose of having a dedicated redress mechanism for recovery related grievances is that these grievances should be promptly addressed. Treating (clubbing) them as (with) other complaints (e.g., operational issues) may result in delayed action. However, this does not imply that a separate redress mechanism for recovery related grievances is being mandated. REs can restructure/ re-organise the existing customer grievance redress mechanism to identify and promptly address recovery related grievances.
Ans. Annex I provides only an indicative methodology for assessment of household income, and REs are required to put in place a board-approved policy for household income assessment. References to household expenses and assessment of household profile are only for the purpose of validation of the household income reported by the borrowers.
Ans. The regulatory framework for microfinance loans is applicable only to REs/ entities. However, it may be prudent for other lenders operating in the microfinance sector to follow these customer-centric directions.
Ans. The customer should keep in mind, among others, the following:
a) There is no requirement of keeping any deposit/ margin/ collateral/ primary security with the lender at any stage of the microfinance loan.
b) Lender is required to provide a loan card to the borrower in a language understood by the borrower which should have following information:
Details of the grievance redress system, including the name and contact number of the nodal officer of the lender.
c) Purchase of any non-credit products is purely voluntary. Fee structure for such products shall be explicitly communicated in the loan card.
d) Training provided by the lenders is free of cost.
Ans. A customer is required to pay only those charges which are explicitly mentioned in the factsheet provided by the lender. Besides this, the customer should also note the following:
Ans. RBI has made it mandatory for lenders to display the minimum, maximum and average interest rates charged on microfinance loans in all their offices, in the literature (information booklets/ pamphlets) issued by them and details on their website.
