In a bid to harmonise the microfinance regulations, the Reserve Bank of India (RBI) has released a consultative paper proposing a new framework. The central bank is proposing no pre-payment penalty, no requirement of collateral, and among other rules, it has also sought feedback from the stakeholders before the end of July.

According to Chandra Shekhar Ghosh, MD and CEO of Bandhan Bank, it is a good rule for registered organisations in the MFI sector. “It is a very good rule because 30 years micro-credit is running in the country, and now is a good time to align all registered organisations to work in the same line on this,” he said in an interview to CNBC-TV18.

Alok Misra, CEO and Director of MFIN, said that RBI has proposed a bold and positive step in terms of interest rate. “70 percent of the market in microfinance, which comprises of banks and small finance banks, is already de-regulated in terms of pricing. Now in terms of NBFC MFI also, the RBI has proposed this. I think that it is a very bold and positive step, but it also needs to be backed up by other consumer protection guidelines which I am sure will come in the rules and regulations,” he said.

Misra also said that the proposed regulations have taken care of the negative territory of NIMs for MFI players. “The base rate linked formula was causing the institutions to bleed. The base rate was not linked to the cost of funds of MFIs, it was just a figure which was the base rate of 5 banks that was going down since last one year, and that was squeezing the margins of NBFC MFIs to a negative territory. That has been freed,” he said.

For the full discussion, watch the video.

(Edited by : Dipika Ghosh)