All You Need To Know About Borrowers Of A Microfinance Loan: RBI

The RBI informs about the regulations related to the borrowers of a microfinance loan. On the issue of microfinance loans, it is an important question, if all members of a household are mandatorily required to become borrowers of a microfinance loan? The RBI states that the directions will require an assessment of income and indebtedness at the household level. So, there will be no need of treating all members of the household as applicants or borrowers of a loan that can be provided to an individual member. The board-approved policies of REs may include the methodologies or operational frameworks to assess the income and indebtedness of all members of the household.

Loans for consumption

Loans for consumption, like purchasing gadgets, meeting expenses on ceremonies, etc. without collateral, will also be treated as microfinance loans. The RBI informs that all collateral-free loans to individuals belonging to low-income households, that is, the households having annual income up to Rs. 3,00,000 will be treated as microfinance loans. However, loans, backed by hypothecation of any security (like gold, equipment, white goods, underlying assets etc.), will not be treated as microfinance loans.

On the other hand, the instructions related to a limit of 50% on monthly loan repayment obligations of a household as a percentage of monthly household income will apply to non-microfinance loans, given to low-income households. In other words, the limit of 50% will include both microfinance as well as non-microfinance loans.

Borrowers also need to know about the credit facilities, not having an EMI feature for arriving at the total monthly repayment obligations, of the household. The central bank says that the board-approved policies of REs should cover such operational aspects on credit facilities not having EMI features. RBI informs, "One possible way could be to distribute the annualized repayment obligations over twelve months to estimate monthly outgo of the household towards debt repayment."