The Reserve Bank of India(“RBI”) has notified the Reserve Bank of India (Regulatory Framework for Microfinance Loans) Directions, 2022 on 14th February 2022. These directions aim to provide a regulatory framework for various regulated lenders in the microfinance space. While these directions aim to revamp the manner and responsibilities of all lenders (and not just NBFC-MFIs) in respect of microfinance loans, the biggest change it brings over is the definition of microfinance loans.
These directions are applicable to all the following entities (referred to in these regulations as “Regulated Entities”)
In line with these directions, any loan issued by these regulated entities, shall be classified as a “microfinance loan”, if it meets the following criteria:
The directions further state that such collateral-free loans shall not be linked with a lien on the deposit accounts, in order to maintain their collateral-free status.
Further, unlike the existing directions, which classify loans based on the quantum of the loan amount, the new directions permit the regulated entities to adopt a Board approved policy to determine the quantum of such micro-finance loans, subject to the specified conditions.
All regulated entities will be required to review their existing framework, fair practice code and policies, to ensure due compliance of these directions. RBI has clarified that all such loans, interest rates, and other parameters shall be subject to supervisory review by the RBI and regulated entities would do well, to ensure adequate compliance thereon.