Micro Finance Institutions (MFIs) cannot charge more than 26 pc interest – RBI

The Reserve Bank has capped interest rates charged by micro finance institutions from small borrowers at 26 per cent, but opened for MFIs the bank credit line which was curtailed following the crisis faced by the sector in October, 2010.

The loan by the banks to MFIs for on-lending to small borrowers will fall under ‘priority sector’ category if the RBI guidelines are met. The detailed guidelines will be issued soon, the RBI Governor D Subbarao said while unveiling the annual credit policy.

Broadly accepting the recommendations of the Malegam Committee, the RBI has fixed the loan amount for an individual borrower at Rs 35,000 from an MFI. The expert panel had suggested the limit of Rs 25,000 with an interest rate cap of 24 per cent.