RBI issued guidelines on Microfinance Institutions (MFIs)
Context
Recently, the RBI issued guidelines on how Microfinance Institutions (MFIs) must be regulated. It suggested three key categories: pricing, over-indebtedness, and conduct.
Relevance:
GS-03 (Economy)
Key Features of the Guidelines
- Loan Pricing:
- MFIs must adopt transparent and board-approved interest rate policies.
- Rates should be justifiable and not exploitative.
- Over-Indebtedness Control:
- A borrower cannot take microfinance loans from more than three lenders in total.
- Conduct & Discipline:
- MFIs are barred from offering fresh loans to clients defaulting for over 60 days with any lender.
About Microfinance (Microcredit)
- Definition: Small loans provided to low-income individuals or groups with limited access to traditional banking.
- Services Offered: Microcredit, savings, micro-insurance, and remittance.
- Origin: Concept popularized by Grameen Bank in Bangladesh (1983), founded by Muhammad Yunus.
Regulatory Framework in India
- Self-Regulatory Organizations (SROs): MFIN and Sa-Dhan recognized by RBI in 2014.
- RBI’s 2022 Framework: Set definitions, pricing rules, repayment caps, and conduct norms for MFIs.
Prelims Practice Question
Consider the following statements about Microfinance Institutions (MFIs):
- An individual can borrow from any number of MFIs as long as repayment capacity is maintained.
- The interest rate charged by MFIs must be approved by their Board of Directors.
- MFIs are not allowed to offer fresh loans to borrowers who defaulted for more than 60 days.
Which of the statements given above is/are correct?
A. 1 and 2 only
B. 2 and 3 only
C. 1 and 3 only
D. 1, 2 and 3
Answer: B
