The Reserve Bank of India has raised the lending cap for microfinance institutions to ₹1.25 lakh, against the earlier limit of ₹1 lakh, to improve credit availability in rural and semi-urban areas. It has also been decided to “increase the household income limit for borrowers of non-banking financial companies-micro finance institutions (NBFC-MFIs) from the current level of ₹1 lakh for rural areas and ₹1.60 lakh for urban/semi urban areas to ₹1.25 lakh and ₹2 lakh, respectively”.
  1. 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, the Reserve Bank of India (RBI) observed in its Statement on Developmental and Regulatory Policies.
  2. The income and loan limits to classify an exposure as an eligible asset were last revised in 2015.
  3. It is to be noted that the a sub-committee of the central board of the Reserve Bank under the chairmanship of Y.H. Malegam was constituted to study issues and concerns in the sector in the wake of the Andhra Pradesh micro finance crisis in 2010.
  4. Based on the recommendations of the committee, it was decided to create a separate category of NBFC-MFI and a detailed regulatory framework for NBFC-MFIs was put in place in December 2011.
  1. Microfinance Institutions (MFIs) in India exist as NGOs (registered as societies or trusts), Section 25 companies and Non-Banking Financial Companies (NBFCs). Commercial Banks, Regional Rural Banks (RRBs), cooperative societies and other large lenders have played an important role in providing refinance facility to MFIs. 
  2. Banks have also leveraged the Self-Help Group (SHGs) channel to provide direct credit to group borrowers.
Salient Features of Microfinance
  1. Borrowers are from the low income group
  2. Loans are of small amount – micro loans
  3. Short duration loans
  4. Loans are offered without collaterals
  5. High frequency of repayment
  6. Loans are generally taken for income generation purpose
  7. Gaps in Financial System and Need for Microfinance