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With an aim to create a level playing field, the Reserve Bank of India (RBI) has allowed microfinance lenders to fix interest rates on loans with a rider that those should not be usurious for the borrowers. These directions shall be effective from April 01, 2022.

As per the RBI, each regulated entity (RE) should put in place a board-approved policy regarding pricing of microfinance loans. Interest rates and other charges/ fees on microfinance loans should not be usurious. These shall be subjected to supervisory scrutiny by the Reserve Bank.

The Reserve Bank of India further noted that each RE shall disclose pricing related information to a prospective borrower in a standardised simplified factsheet. Any fees to be charged to the microfinance borrower by the RE and/ or its partner/ agent shall be explicitly disclosed in the factsheet. The borrower shall not be charged any amount which is not explicitly mentioned in the factsheet.

Besides, the factsheet shall also be provided for other loans (i.e., collateralized loans) extended to borrowers from low-income households. There shall be no pre-payment penalty on microfinance loans. Penalty, if any, for delayed payment shall be applied on the overdue amount and not on the entire loan amount.