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Microfinance limits raised, sector gets shot in the arm

RBI has raised the household income limit for availing micro loans while enhanced the lending limit to Rs 1.25 lakh per eligible borrower from Rs 1 lakh earlier.

, ET Bureau|
Oct 04, 2019, 04.50 PM IST
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RBI said borrowers with annual household income up to Rs 1.25 lakh in rural areas would now be eligible to take micro loans
Kolkata: Kolkata: Reserve Bank of India has raised the micro loan limits to ensure higher flow of funds to the economically weaker section as their role in the economy has grown over the years with the government’s inclusive agenda.

In a twin-move, the regulator has raised the household income limit for availing micro loans while enhanced the lending limit to Rs 1.25 lakh per eligible borrower from Rs 1 lakh earlier.

“Taking into consideration the important role played by MFIs in delivering credit to those in the bottom of the economic pyramid and enable them to play their assigned role in a growing economy, it is proposed to revise these criteria,” RBI said Friday.

The decisions would provide a shot in the arm to the country’s microfinance sector as they could cater to a wider market now. The income and loan limits to classify an exposure as eligible asset were last revised in 2015.

RBI said borrowers with annual household income up to Rs 1.25 lakh in rural areas would now be eligible to take micro loans while the threshold limit was Rs 1 lakh earlier. Similarly, income limit has been raised to Rs 2 lakh from Rs 1.6 lakh for borrowers in urban and semi urban pockets.

“This is a good move and reflects the change in household income since 2015,” said Manoj Nambiar, chairperson at Microfinance Institutions Network, the sector lobby group and self-regulator.

“This will also allow clients to avail a higher loan amount from RBI regulated formal financial institutions,” Nambiar said.

RBI will issue detailed guidelines in this matter shortly.

“We welcome the modifications made for NBFC-MFI lending norms, which is very positive for MFI sector,” said Udaya Kumar Hebbar, managing director at CreditAccess Grameen, a Bengaluru-based NBFC-MFI.

“RBI move to cut the repo rate by 25 basis points is a bold move, however the delay in transmission of this reduction is hurting the ultimate borrowers. We expect steps by RBI to ensure the transition of the same by banks, which will support the ultimate low income households,” Hebbar said.

Despite RBI’s 110 bps repo rate cut before Friday’s rate action, NBFC-MFIs have hold their lending rates as they complain that their borrowing cost did not go down since February.
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