RBI proposes collateral-free microfinance loans to households

Mumbai: The skyrocketing fuel prices and their immediate impact on inflation along with the COVID curbs have left the middle-class and lower-middle-class household in misery.

As the governmental beneficial projects are yet to be announced to alleviate household difficulties caused by the pandemic, the RBI came out with a proposal to streamline the microfinance institutions.

The proposed framework would limit the repayment of loan dues of a household to a maximum of 50 per cent of the income. It will also remove the requirement of collateral to avail loan and pre-payment penalty, besides the more flexible repayment options.

Meanwhile, the apex bank has not fixed and capped the interest rates. "Microfinance loans should mean collateral-free loans to households with an annual household income of Rs 1, 25,000 and Rs 2, 00,000 for rural and urban/semi-urban areas, respectively. For this purpose, 'household' means a group of persons normally living together and taking food from a common kitchen," the RBI said.

According to the RBI, the head of the household will be a determinant factor in terms of the composition of a household, importance will be given to 'normally living together than on 'ordinarily taking food from a common kitchen'.

The RBI has also devised a payment system for capping the interest and repayment of principal for all outstanding loan obligations of the household in accordance with their household income.

There are 197 MFIs with a loan outstanding of Rs 2,27,942 crore. Of this, 15 banks account for Rs 93,432 crore, 86 NBFC-MFIs Rs 70,196 crore and 8 small finance banks Rs 42,689 crore.