Malegam panel proposes 24 % cap on interest rate on MFI loans
Aimed at reviving the crisis- ridden micro finance sector, a Reserve Bank of India Committee suggested that micro finance institutions (MFIs) be allowed to charge a maximum interest of 24 per cent on small loans which cannot exceed Rs. 25,000.
The committee, headed by Reserve Bank's Central Board Director Y. H. Malegam, also pitched for creation of a separate category of non-banking financial companies (NBFC-MFI) for the micro finance sector.
The panel also said small loans of up to Rs. 25,000 could be given to families having an income up to Rs. 50,000 per annum. On repayment, the borrowers should be given the option of weekly or fortnightly or monthly return of the loan.
At least 75 per cent of loans extended by MFIs should be for income generation purposes.
Borrower cannot take loans from more than two MFIs.
The decisions taken by the State government to regulate MFIs slowed down the loan recovery process hitting the financial health of the sector. It was further aggravated by the reluctance of banks to support MFIs.
To deal with the problem, the RBI had relaxed provisioning norms to enable banks to continue lending to the cash-strapped MFIs.
About the regulations of MFIs: it should be done by the National Bank for Agriculture and Rural Development (NABARD) in close coordination with the RBI.
