MFI players seek tweaks in 2022 lending norms

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Microfinance institutions (MFIs) have approached the Reserve Bank of India (RBI) seeking relaxations in the 2022 regulatory framework for microfinance loans, three sources aware of the development told businessline.

Last week, RBI Deputy Governor M Rajeshwar Rao had said the RBI is receiving feedback on the MFI guidelines, and that the regulator will review at an appropriate time and decide if any revision is warranted at that juncture.

What are the requests?

Under the earlier criteria, a MFI was required to maintain minimum 85 per cent of its ‘net assets’ as ‘qualifying assets’ or MFI loans. Net assets are essentially total assets other than cash, bank balances and money market instruments. In 2022, the regulator revised the minimum requirement of MFI loans to 75 per cent of the MFI’s ‘total assets’.

This provision, bankers say, leads to lower avenues for MFIs to park funds in, leading to lower returns. Accordingly, the MFI players are requesting the RBI to revise the norm to the earlier criteria, wherein MFIs were required to maintain minimum 85 per cent of its ‘net assets’ as MFI loans. The regulator could also consider lowering the minimum requirement of MFI loans to 60 per cent of ‘total assets’, as against 75 per cent of the total assets currently.

“Borrowers who has been with micro finance institution for last five-six years, and has successfully repaid loans in different cycles, if they want to go for higher ticket loan for housing or different business purpose, MFIs must be able to service that,” a source said. “Existing norms mandate that MFI loans can be extended only to households with ₹3 lakh of annual income, and borrower repayment outflows must be capped at 50 per cent of the monthly household income. Such higher ticket loans can be extended under non-qualifying assets currently, but can it become a part of MFI loan itself…” they said.

Further, the players are also requesting that all MFIs must be allowed to conduct e-KYC for loan sanctioning. RBI did not immediately respond to queries sent by businessline.

RBI concerns

Even as the MFI industry is seeking revision in existing norms, the regulator is closely scrutinising overheating in the segment. Industry experts have already flagged borrowers in certain parts of the country having more than 5 MFI loans from different companies. “Apart from over leverage, the RBI is closely monitoring cases where MFI companies are charging usurious interest rates as high as 40-45 per cent after the central bank removed caps on the pricing of small loans given by MFIs in 2022,” a source said.