The Reserve Bank of India (RBI) on Monday said that micro-finance lending institutions cannot charge high interest from customers. Along with this, they have also been asked to fix a limit on the charges associated with the loans.
The Reserve Bank issued its new guidelines regarding micro-finance loans, saying that all regular entities should implement a policy approved by the board of directors. The policy needs to bring clarity on the pricing, cover, interest rate cap and all other charges for micro-finance loans.
According to this draft on micro-finance loan guidelines, interest rates and other charges on these loans should not be kept too high. These fees and rates will be under the supervision of the Reserve Bank. In addition, each regular entity must provide cost-related information about a potential borrower in the form of a standardized simple ‘factsheet’. Under the old guidelines, non-banking financial companies (NBFCs) that did not qualify as a micro-finance institution could not extend micro-finance loans to more than 10 per cent of their total assets, but now the ceiling has been increased to 25 per cent. Is.
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No prepayment charges
The central bank has also said that if the borrower wants to repay his loan prematurely, then no penalty (prepayment fee) should be imposed on him. However, if there is a delay in the installment payment, the micro-finance institution can levy a penalty on the customer but that too will be levied on the outstanding amount and not the entire loan amount. Apart from this, provision has also been made to prepare the loan agreement in a language understandable to the borrower.
who are small borrowers
A micro-finance loan refers to a guarantee-free loan given to a family with an annual income of up to Rs 3 lakh. No collateral is sought for this type of loan. It is like a personal loan. Usually, this category of customers is easily offered by non-banking finance companies, but the interest is very high.