Large Non-Banking Financial Company-Micro Finance Institutions’ (NBFC-MFIs) will be able to extend micro-credit at 12 per cent over their cost of borrowing for the whole of the current financial year.
The Reserve Bank of India issued a notification to this effect on Thursday.
This means, customers borrowing from large MFIs over the course of the current financial year will have to pay two per cent more than they would have otherwise paid from August 2013 onwards. An average micro-finance loan is about Rs 10,000.
The banking regulator had capped the interest rate at 10 per cent for MFIs having a loan portfolio of over Rs 100 crore. This was to take effect from August 2013.
Citing difficulties in adhering to the new interest rate cap, Micro Finance Institutions' Network — a self-regulatory body of MFIs — had petitioned the RBI to give companies more time to adhere to the new guidelines.
The Y.H. Malegam Committee had recommended a 26 per cent interest cap on all MFI loans. However, the RBI, in its August 2012 notification, said “since borrowing costs are dynamic and may exceed the costs envisaged when the Committee recommendations were made, it may be difficult for MFIs which are borrowing at rates higher than envisaged at that time to operate along viable lines if interest rate is capped at 26 per cent.”
Therefore, while prescribing the interest cap of 12 per cent and 10 per cent, the regulator said to allow operational flexibility, NBFC-MFIs will ensure that their cost of lending cannot exceed their cost of borrowing plus the margin.