Press Information Bureau

Government of India

Ministry of Finance

25-November-2011 18:51 IST

In view of the developments in the Microfinance sector, particularly in Andhra Pradesh, the Reserve Bank of India (RBI) had in October, 2010 constituted a Sub-Committee under Shri Y.H. Malegam, Member of the Central Board of Directors of RBI, to study issues and concerns of the Micro Finance Sector including interest rates charged by the lenders in this area. The Malegam Committee in its Report has inter alia recommended the following.

(i) Creation of a separate category of NBFCs viz. NBFC-MFIs to be regulated, and supervised, by the RBI.

(ii) An average "margin cap" of 10 per cent for MFIs having a loan portfolio of Rs.100 crore and of 12 per cent for smaller MFIs. An interest cap of 24% on individual loans of MFIs.

(iii) In the interest of transparency, an MFI can levy only three charges, namely, (a) processing fee (b) interest and (c) insurance charge.

(iv) A borrower can be a member of only one Self- Help Group (SHG) or a Joint Liability Group (JLG).

This information was given by the Minister of State for Finance, Shri Namo Narain Meena in written reply to an Unstarred Question in Lok Sabha today.

DSM/Hb

NBFC-MFI regulation limits allowable fees to specified charges and restricts borrower membership to a single group. The report recommends recognising a distinct regulated class of microfinance lenders (NBFC-MFIs) under RBI supervision, imposing a differentiated average margin cap and an upper interest rate cap on individual MFI loans, limiting MFIs to three allowable charges (processing fee, interest, insurance) for transparency, and restricting each borrower to membership of only one Self-Help Group or Joint Liability Group to mitigate multiple borrowing.