RBI eases lending-related restrictions, increases limits for NBFC-MFIs

'Measures are expected to boost MFI lendings to the bottom of the economic pyramid'

In support to improve the credit availability to the deep rural pockets, the Reserve Bank of India eased lending-related restrictions for non-banking financial service-micro finance institutions (NBFC-MFIs).

The central bank increased the household income limit for NBFC-MFI borrowers from the existing Rs 100,000 to Rs 125,000 and from Rs 160,000 to Rs 200,000 for rural areas and for urban/semi urban areas, respectively. Besides, per borrower lending limits for NBFC-MFI raised to Rs 1,25,000 from currently Rs one lakh. The existing loan and income limits were last revised in 2015.

“....micro finance institutions play an important role in delivering credit to those in the bottom of the economic pyramid. These measures are expected to boost MFI lending to the bottom of the economic pyramid,” RBI governor, Shaktikanta Das, said.

As per RBI data, there are 95 NBFC-MFIs as of August 2019.  The Micrometer report by Microfinance Institution Network or MFIN, NBFC-MFIs accounted for around 30 per cent of total micro finance credit of Rs 1.9 trillion as of June 2019. MFIN is the industry body for NBFC-MFIs in India.

The announcement by RBI is very positive for rural areas. Increased lending limits is expected to help enhance momentum in rural areas and revival of rural economy to some extent, says Udaya Kumar Hebbar, managing director and chief executive officer, CreditAccess Grameen. He also believes that these announcements are in line with inflation and rise in loan requirement by customers.

In light of rising demand for micro credit, the increased lending limits by RBI gives more room for lenders to lend. From Rs 10,000, the average ticket size of MFIs has grown to around Rs 30,000.

Stocks of two listed NBFC-MFIs – CreditAccess Grameen and Spandana Sphoorty Financial gained around 2-4 per cent in Friday’s trading session.