RBI Guidelines on Microfinance Loans cruelest attack on poor people

C.P.Krishnan (சி.பி.கிருஷ்ணன்)

THE Reserve Bank of India (RBI) has come out with a master direction on microfinance loans, removing the prevailing ceiling on interest rate. This will come into effect from April 1, 2022. This is the cruelest attack on the poor people, particularly women, who largely depend on this type of loan for their survival.


With the advent of neo-liberal policies PSBs were forced to dilute their role of financial inclusion and priority sector advances. For instance, in 1994 the loans below Rs. 25,000 were 18.3 per cent of the total loans and the number of beneficiaries was 5.58 crores, whereas in 2010 (after 16 years) this has been reduced to 1.3 per cent of the total loans while the number of beneficiaries was reduced to just 19 lakhs! Where did these more than 5 crores borrowers go? They were driven towards private Microfinance Institutions (MFIs) which had come into existence in large numbers during this period.

During this period, MFIs started squeezing the borrowers by charging processing fees, late fees and pre-closure fees and fixed the rate of interest between 48 and 60 per cent per annum. The recovery was made weekly/fortnightly using goons as recovery agents. The agents used to harass the poor borrowers who by chance defaulted repayment of loan even by a day, using abusive language in public in their work place/residence and charged penal rate of interest on the entire outstanding loan instead of the installment. There were hundreds of complaints against these MFIs particularly in the then Andhra Pradesh. About 150 women were forced to commit suicide allegedly due to the harassment of MFIs.


RBI issued guidelines in line with the recommendation of Y H Malegam committee report submitted in January 2011. They brought many restrictions like capping the interest rate at 10-12 per cent above the rate of interest at which they get funds, interest rate to be transparent, sanction and disbursement of loans to be done only at a central place and more than one person to be involved in this, monthly recovery (not weekly or fortnightly recovery), no coercive method of recovery, no over-lending to an individual, lender or recovery agent not allowed to visit the place of work/residence of the borrower for the purpose of recovery etc. The RBI guidelines provided a great relief from the harassment suffered by micro-borrowers. This helped borrowers lodge complaints with the police whenever there was violation of law/guidelines and safeguard them to a large extent. Further there were many agitations demanding scrupulous implementation of the RBI guidelines with regard to recovery.

However, the rate of interest fixed at 22-24 per cent per annum through RBI guidelines was in no way helpful. Left parties, trade unions and women’s organisations were insisting that the micro-lending had to be done by PSBs, Regional Rural Banks (RRBs), Cooperative banks at interest rate on par with that of priority sector lending, which ranged from 4 per cent (with government subsidy) to 9 per cent per annum and to cap the interest rate of private lending at 12 per cent; but there was no positive response from the union government/RBI.


But the RBI, instead of providing relief to the hapless poor people who do not have anything to pledge and depend on collateral-free small loan for their micro business/survival, has come out with fresh guidelines on March 14, 2022, removing the interest ceiling on microfinance loans. This will have disastrous consequences in the lives of crores of the poor people. Adding fuel to the fire, there is a clause in the recent RBI guidelines which allows the lender or his agent to visit the house/place of work of the borrower for recovery, if the borrower fails to appear at the central designated place. This clause will make the borrower defenseless against the persecution of the lenders.

As a sequel to the recent RBI guidelines, the financial institutions will again hike the interest rate between 48 per cent and 60 per cent per annum; they will start harassing the borrowers by hiring goons. Thus, tragic incidents that were witnessed about 13-14 years ago will be repeated.

The RBI should withdraw the new guidelines on microfinance loans, initiate dialogue with all the stakeholders and issue fresh guidelines protecting the interest of the poor borrowers. The union government should direct the RBI accordingly. 


  1. Yet another blow to common people and small traders, SHGs, farmers and labourers by the recent RBI guidelines. The anti people policies pursued by Government is exposed through this article. The author of this article is appreciated. Trade unions and other democratic movements have a role to bring this imminent danger to the common man.

  2. Who will bell the cat(RBI).For whose interest RBI is functioning? In the name of economic revival, common public are robbed of their prosperity.

  3. While high profile borrowers and corporates are offered banking finance at single digit rate of interest it is atrocious to levy interest between 48 and 60% on the hapless small borrowers, especially women. The article reiterates the need to make RBI withdraw its guidelines on Micro Finance.

  4. இந்த பிரச்சினை புதிய பொருளாதார கொள்கை அமல்படுத்தும்போது(1991 ல்) ஏற்பட்ட சிக்கல் என நினைக்கின்றேன். வட்டடிவீதங்களை வவங்கியே தீர்மாணிக்கும் உரிமையை வழங்கியதன் விளைவு.ICICI,HDFC போன்ற தனியார் வங்கிகளே துணை நிறுவனங்களை ஏற்படுத்தி இந்த கொள்ளையில் ஈடுபட்டது. அதுவும் அங்கிகரிக்கப்பட்ட பெரு நிறுவணங்களில் பணிபுரிந்தால் 14சதவீத வட்டியும் வங்கியால் அங்கிகரிக்கபடாத சிறு நிறுங்கள் மற்றும் சிரு தொழில் புரியும் ஏழை எளிர்ளுக்கு என்றால் 36 முல் 42 சதவீதம்வரை வசூலிக்கிறார்கள்

  5. The RBI which should be an independent body to govern the economy has become subservient to the Govt. Yet another onslaught unleashed mercilessly on have nots. Only sustained struggle can bring some hope.

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