Press Information Bureau

Government of India

Ministry of Finance

20-December-2011 17:41 IST

Cap on Lending Rates to MFIs

As per Reserve Bank of India (RBI)’s Circular dated May 3, 2011, bank loans extended on or after 1st April, 2011 to MFIs have been given the status of priority sector advances subject to fulfillment of certain conditions like 85% of total assets of MFIs being in the nature of qualifying assets, aggregate amount of loan extended for income generating activity not less than 75% of the total loans given by MFIs and compliance to pricing guidelines. The circular inter alia provides for margin cap at 12% and interest cap on individual loans at 26% per annum for all MFIs, no penalty for delayed payment and no security deposit/margin to be taken. RBI has also reported that the micro finance sector has started witnessing some positive developments after it allowed the continuance of priority sector lending (PSL) status for bank loans to NBFC-MFIs in May this year.

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

DSM/Hb

Cap on lending rates to microfinance institutions limits margins and interest and mandates no penalties or security deposits. RBI guidance conditions the grant of priority sector advances status to bank loans to microfinance institutions on meeting asset composition and lending for income generation thresholds and compliance with pricing guidelines; it imposes a lender margin cap and an interest rate ceiling on individual microloans and disallows penalties for delayed payment and security deposits from borrowers.