The Reserve Bank of India, which is in the process of harmonising regulatory norms for microfinance lenders, needs to remove uneven playing field which gives disproportionate benefit to entities other than finance companies.
The provisioning norms, rules for margins and access to credit information bureaus need to be harmonized.
RBI’s move to bring harmony across class of lenders in microfinance field in positive step. It would reduce the competitive intensity among the various forms of entities operating in this sector, India Ratings (Ind-Ra) in a statement.
There are four sets of lenders in micro finance space – finance companies, universal banks, small finance banks (SFBs) and not for profits companies and trusts.
RBI rules are clear for non-banking finance companies which work as micro-finance institutions (NBFC-MFIs). However, these guidelines are not explicitly applicable for microfinance by non NBFC-MFIs. Hence the other forms of entities operating in microfinance benefit disproportionately from this asymmetry.
In 2014, RBI prescribed rules for NFBC-MFIs placing limits on loan ticket size, loan tenor, the income profile of borrowers, processing fees, yields and code of conduct.
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