RBI may allow margin cap of 12% for large MFIs for FY14

The central bank expected to issue notification in this regard shortly

The Reserve Bank of India (RBI) may allow large microfinance institutions (MFIs) having loanbook above Rs 100 crore, to keep margin cap at 12% for the current year (2013-14). RBI is expected to issue the notification in this regard shortly.

Earlier, in August 2012, RBI had removed overall rate of interest cap of 26% but however had imposed margin cap of 10% on large MFIs and 12% for small MFIs (loanbook less than Rs 100 crore).

Alok Prasad, chief executive of Microfinance Institutions Network (MFIN) told Business Standard, “we explained to the RBI that a sudden, mid-year change of margin cap will cause significant operational problems for MFIs.” He added that, “it was also explained (to RBI) that MFIS would need time to make the shift to a lower cap.”

Earlier RBI in December 2011 had applied the new norms for MFI sector based on the report of Malegam committee. Those norms had included 12% margin cap for all MFIs irrespective of sizes with the interest rate cap of 26%.

RBI had also allowed MFIs to notionally reckon the Andhra Pradesh portfolio in the net worth of the company and thus didn’t impact capital adequacy ratio of the MFIs.  

In October 2010, the Andhra Pradesh government passed a legislation to restrict micro lending of private players following reports that these lenders charge exorbitant interest and use coercive methods to recover loans.

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