RBI issues Regulatory Framework for Microfinance Loans

• The Reserve Bank of India has released the framework for Microfinance Loans. The most important points from the exam point of view are given below:
  • A microfinance loan is defined as a collateral-free loan given to a household having an annual household income up to Rs. 3,00,000.
  • RBI has removed the cap on the number of NBFC-MFIs who can provide loans to microfinance borrowers. Instead, it has focused on borrowers’ repayment capacity and accordingly capped the fixed obligation to income ratio (FOIR) at 50 per cent. 
  • The minimum requirement of microfinance loans for NBFC-MFIs has been revised to 75 per cent of the total assets.
  • The maximum limit on microfinance loans for NBFCs other than NBFC-MFIs has been revised to 25 per cent of the total assets.

Points to remember:

1. microfinance loan is defined as a collateral-free loan given to a household having annual household income up to ____?-  Rs 3 lakh
2. FOIR full form?- fixed obligation to income ratio
3.  RBI has fixed the FOIR for NBFC-MFIs at?- 50%
4. What is the minimum requirement of microfinance loans for NBFC-MFIs?- 75% of total assets
5. What is the maximum limit on microfinance loans for NBFCs other than NBFC-MFIs?- 25% of total assets

Source: RBI