Malegam Proposals Softened in Implementation

Siddhartha Chowdri of Accion in India reports on the Reserve Bank of India's new rules on microfinance:

Although more details on the regulation are to be released later this week, the RBI did make some significant and welcome changes in the regulations, including:

• Repayment frequency of loans can be at the discretion of the client. The earlier recommendation had mandated monthly collections, whereas most Indian MFIs collect loans on a weekly basis.
• Individual loans to be considered as microfinance. The earlier recommendation was only limited to group lending.
• Making a distinction between rural and non-rural in the income qualification for loans to be considered microfinance.
• Increased the proposed interest rate cap from to 26% up from 24%. This is still extremely restrictive for small institutions, but will make a major difference to some of the larger players, who already operating around these rates.