Large MFIs may get to keep 12% margin cap this financial year

The Reserve Bank of India (RBI) might allow large microfinance institutions, or MFIs (with a loan book more than Rs 100 crore) to keep a margin cap of 12 per cent for this financial year. It is expected RBI would issue a notification in this regard soon.

In December 2011, RBI had announced new norms for the MFI sector. The norms included a 12 per cent margin cap and an interest rate cap of 26 per cent for all MFIs, irrespective of the size. In August 2012, it did away with the overall rate of interest cap of 26 per cent and imposed a margin cap of 10 per cent for large MFIs and 12 per cent for small MFIs (loan book less than Rs 100 crore).

Alok Prasad, chief executive of Microfinance Institutions Network, said, "We told RBI a sudden, mid-year change of margin cap would cause operational problems for MFIs… it was also explained that MFIs would need time to shift to a lower cap."

Earlier, RBI had allowed MFIs to notionally reckon the Andhra Pradesh portfolio in the net worth of the company so that it didn't impact the capital adequacy ratios.

In October 2010, the state government had passed a legislation restricting micro lending by private companies, following reports these lenders charged exorbitant interest and used coercive methods to recover loans.

It mandated compulsory registration of microfinance companies and loan collection near local government offices and banned weekly recoveries.