Micro Lenders Cut Rates: RBI Flags 'Usurious' Charges

Mumbai, Aug 1 (PTI) Small lenders' industry body MFIN on Thursday said microfinance entities have started reducing loan interest rates and adopting guardrails, following repeated rebukes by Reserve Bank Governor Shaktikanta Das for levying "usurious" charges on borrowers.

Terming the move as "proactive", Microfinance Institutions Network (MFIN) said lenders have started reducing interest rates on loans and are also adopting guardrails to safeguard borrowers.

Das had, on June 7, chided microlenders for charging "usurious" interest rates, and also followed it up with a warning on July 19 of revisiting regulations allowing flexibility for the sector because of such conduct.

"MFIN as the first Self-Regulatory Organisation (SRO) in India has been working with its members to ensure that this flexibility is used responsibly, and efficiency gains are passed on to clients," the industry body said in a statement.

Claiming that the sector has demonstrated "maturity", MFIN said 10 of its members have cut interest rates by around 1.50 per cent in the last few months despite the elevated cost of funds in the economy.

The reduction has been possible due to the improved credit quality of portfolio created post COVID, increase in efficiency of operational processes and adoption of technology and diversification of the sources of funding, it said.

Besides, the industry body said, members at MFIN's recent annual general meeting have also resolved to follow the practice of "responsible lending, prioritizing customer protection and promoting a steady and calibrated growth of the sector".

They have agreed to restrict the number of microfinance lenders to a borrower at four and the limit for microfinance indebtedness in a borrower at Rs 2 lakh, the statement said.

"MFIN as an SRO will continue to watch the sector closely and its adherence to the new guardrails," the body's chief executive and director Alok Misra said.

A number of lenders have been pointing towards building up of stress in the MFI lending space, while some point towards certain geographical pockets in north and west India where they have been facing challenges.