MFI consultation paper: Incrementally positive for NBFC-MFIs, says report

The Reserve Bank of India’s (RBI’s) consultative paper on regulation of microfinance may swing the competitive advantage in favour of micro-finance institutions (MFIs) vis-a-vis banks. The paper has proposed greater harmoni­sation in the overall regulatory landscape. It includes threshold definitions anchored to household income, removal of caps on number of total lenders and pricing, and elimination of any end-use restrictions on qualifying borrowers.

According to HDFC Securities’ BFSI Sector Update report, given that most of the existing restrictions were applicable to NBFC-MFIs (which had a 30 per cent market share in MFI loans by value and 35 per cent by volume as on Dec’20), these relaxations are likely to shift the competitive positioning in favour of NBFC-MFIs.