RBI plans to protect microfinance borrowers

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The Reserve Bank of India will start to accept applications for setting small bank payments, aimed to cater to small businesses and low income households, by the end of this month after putting in place regulations to allow this avenue of finance. Governor Raghuram Rajan revealed his plans at a NABARD function in Mumbai while addressing micro-financiers.
The Reserve Bank of India will start to accept applications for setting small bank payments, aimed to cater to small businesses and low income households, by the end of this month after putting in place regulations to allow this avenue of finance. Governor Raghuram Rajan revealed his plans at a NABARD function in Mumbai while addressing micro-financiers.

Mr Rajan said that the apex bank is also planning to renovate its cash management system so that the microfinance borrowers are protected from arbitrary loan pricing. Voicing his concerns against repeated loan waivers by various state governments, he said the move alters credit pricing, which in turn also disrupts the credit market. For consumer protection there should be a reasonable limit on interest rate on loans from micro finance lenders, the loans should be regulated in a consistent and reasonable way.

Following the October 2010 crisis in the then undivided Andhra Pradesh that crashed the MFI (monetary financial institution) sector, a panel from the RBI had suggested 26% monthly cap on interest rates for the sector. This cap was notified by the Central Bank in April 2012.