A committee headed by Y H Malegam, central board director of the Reserve Bank of India (RBI), India’s central banking authority, met last week and proposed that microfinance institutions (MFIs) should be allowed to charge a maximum interest rate of 24 percent to borrowers and that loans to a single microborrower should not exceed INR 25,000 (USD 548). Furthermore, the committee recommended that an individual borrower should not be allowed to receive more than two loans, should be part of only one joint-liability group and that 75 percent of the loans disbursed by MFIs should support income-generating activities. The committee also recommended establishing a national credit information bureau.
The Malegam Committee was created in October 2010 and has since been drafting new legislation for the industry. The proposed regulations were contrary to statements made earlier this month by K C Chakrabarty, deputy governor of RBI, that it would not regulate the microfinance institutions (MFIs) by putting a cap on interest rates charged to borrowers. A similar bill was proposed for the state of Andhra Pradesh in 2010, but has yet to be formally implemented. The date put forth to implement the RBI recommendations is April 1, 2011.
By Julie Moksim, Research Associate
Sources and Resources:
The Hindu: “Malegam Panel Proposes 24% Cap on Interest Rate on MFI Loans”, January 19, 2011, http://www.thehindu.com/business/Economy/article1103090.ece
MicroCapital.org Brief, January 14, 2011: Reserve Bank of India (RBI) Indicates No Interest in Rate Cap, States It Has No Solution For Microfinance Institutions (MFIs) Whose Clients Won’t Repay Their Loans, https://www.microcapital.org/microcapital-brief-reserve-bank-of-india-rbi-indicates-no-interest-in-rate-cap-states-it-has-no-solution-for-microfinance-institutions-mfis-whose-clients-won?t-repay-their-loans/
MicroCapital.org Brief, November 16, 2010: Under Pressure From State Government of Andhra Pradesh, Indian Microfinance Institutions Agree to Cap Interest Rates at 24%, https://www.microcapital.org/microcapital-brief-under-pressure-from-state-government-of-andhra-pradesh-indian-microfinance-institutions-agree-to-cap-interest-rates-at-24/
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