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A day after the RBI announced ‘Master Direction - Reserve Bank of India (Regulatory Framework for Microfinance Loans) Directions, 2022’, credit rating agency, India Ratings and Research (Ind-Ra) in its latest report has said that the key changes in the final regulations for microfinance institutions (MFIs) will bring in the entire industry under the regulatory coverage unlike one-third of the industry coverage earlier.

As per the report, the ability of small and mid-sized MFIs players to implement risk-based pricing would enable building both scale and operating buffers, resulting in improved credit worthiness in the eyes of lenders. This is in line with the agency’s FY23 Outlook: Microfinance where it had said that the viability of the small-medium MFIs could improve post the implementation of the proposed harmonisation guidelines. The rating agency also said that the notification is also expected to improve the ability of non-bank finance company (NBFC)-MFIs to penetrate into newer geographies, as pricing can now be differentiated, and cover the higher operating costs for the same.

Meanwhile, the key changes in the final regulations include the widening of the definition of regulated entities to include commercial banks, co-operative banks, district/state central co-operative banks, NBFC-MFIs, NBFC housing finance companies (HFCs), as well  as the removal of pricing caps.