Reserve Bank of India Eases Lending Norms for Microfinance Institutions
Tuesday, February 11, 2014
The Reserve Bank of India (RBI) on Friday announced rules giving more flexibility to microfinance institutions (MFIs) to calculate the interest rate at which they can lend to borrowers, linked to their cost of funds.
This will, in effect, give more leeway to medium-sized micro lenders to price their loans based on their cost borrowings from commercial banks.
MFIs are companies that lend small loans to low-income borrowers. They typically lend at 26-34% and mainly source their funds from commercial banks for lending to borrower. MFIs operate in the form of non-banking financial companies (NBFCs) control majority of the market in terms of assets.