Thomas Franco
On 14th March 2022, RBI issued revised instructions for microfinance loans to the poor.
Their website published a draft on 14 June 2021. The draft has been criticized by several women’s organisations and a number of articles appeared in the newspapers and magazines criticizing the proposed removal of ceiling on the interest rate and giving freedom to the boards of these institutions to decide the interest rate. Ignoring the inputs, RBI has revised its earlier guidelines. The RBI now seldom seems to listen to people’s voices. One of the guidelines says that the rate should not be usurious. But we have seen that many MFIs are already charging 26%, which is usurious. MFIs get a loan from the banks at around 9% interest. Giving them the freedom to charge more interest is unethical and leaves the poor at the mercy of Shylocks.
As per its guidelines, a microfinance loan is defined as a collateral-free loan provided to a household with an annual household income of up to Rs. 3,00,000. In this instance, a household is a husband, wife, and their unmarried children.
The Regulated Entities (REs) shall have a board-approved policy to provide the flexibility of repayment periodicity on microfinance loans as per borrowers’ requirements.
Each RE shall put in place a board-approved policy regarding the pricing of microfinance loans which shall, inter alia, cover the following:
- A well-documented interest rate model/ approach for arriving at the all-inclusive interest rate;
- Delineation of the components of the interest rate such as cost of funds, risk premium, margin, etc. in terms of the quantum of each factor based on objective parameters;
- The range of spread of each component for a given category of borrowers; and
- A ceiling on the interest rate and all other charges applicable to microfinance loans.
Interest rates and other charges/ fees on microfinance loans should not be usurious.
These shall undergo supervisory scrutiny by the Reserve Bank.
Does the RBI have the ability to control these Non-banking Finance Companies numbering more than 10000 now? RBI has only one office in state capitals. RBI cannot monitor these NBFCs. There are already too many complaints! In Andhra Pradesh, the state assembly passed a bill to regulate MFIs in 2011 after a report of 54 suicides. (See, Death by default, Down to Earth, Nov 30, 2010 Issue) The Assam assembly had passed a bill regarding the same in 2020. Now the RBI instructions supersede these acts passed by state Governments. Where is federalism in these actions? Did RBI consult the states? In fact, RBI instructions also state the following-
RE or its agent shall not engage in any harsh methods towards recovery. Without limiting the general application of the preceding, the following practices shall deem as grim:
- Use of threatening or abusive language
- Persistently calling the borrower or calling the borrower before 9:00 a.m. and after 6:00 p.m.
- Harassing relatives, friends, or co-workers of the borrower
- Publishing the name of borrowers
- Use of violence or threatening or other similar means to harm the borrower or borrower’s family/ assets/ reputation
- Misleading the borrower about the extent of the debt or the consequences of non-repayment
The question is, does the RBI have any mechanism to check this? All the above retrograde practices are taking place every day across the country, and the poor have no way out. All India Democratic Women’s Association (AIDWA) has conducted studies and even gone to court, but without any relief. Currently, there is the Usurious Loans Act 1918, which does not help the poor. The poor can only get a maximum of just Rs 1,25,000 as a loan. Should we not control the interest rates? When the Tatas can get, Rs.10000 crore at a 4.5% rate, why not the poor?
What is to be done?
India has some excellent models in place. The Self Employed Women’s Association (SEWA), which started as a trade union of the unorganized in 1972, is a pioneer in this area. It runs the SEWA Bank and has an exceptional lending model. Mysore Rehabilitation Development Agency (MYRADA) had already put women into groups and guided them to lend among themselves, later creating successful Credit Groups. Mahalir Association for Literacy Awareness and Rights(MALAR) in Kanniyakumari, Tamil Nadu, is now a 27 years old self-reliant model which can be replicable everywhere. Kerala has Kudumbashree, which is a neighbourhood-based lending model. Andhra Pradesh had the VELUGU project. West Bengal once had a Cabinet Minister for SHGs!
What we need is to strengthen the NABARD guided SHG-Bank linkage model, expand it, and provide more direct credit. The bloodthirsty, profit-seeking Micro Finance Institutions that use harassment for recovery need to be banned immediately. We need to study the models of SEWA, Kudumbashree, MALAR etc. and ask banks to support them.
The present day dispensation at the centre through their discriminatory policies are bringing in the worst to the economically weaker sections and women. One such is the higher interest rates charged by MFIs. The author of this article has brought in neatly this aspect with a solution. Will the government heed?
We can use woman SHG for micrifinance.in corana period all the banking systemgave holidayperiod but microfinance instns not. They squeesed the borrowers with military style.we should fo some reserch.already aidwa. Is doing something. Befi can cordinate with them and do something
Very elaborate and deep insight on Microfinance Loans and the brutal exploitation of the rural and urban poor through exorbitant interest rates.RBI and NABARD should contain the rate below 12% when they are allowing the Corporates to avail at 4.5%
கோவையில் சில மகளிர் அமைப்பு கள் நடத்திய போராட்டங்களில் கலந்து கொண்டிருக்கிறேன்.. MF நிறுவங்களின் வசூல் ராஜாக்களின் அராஜகம் நிறைந்த வசூல் முறைகள் கொடுமையானவை..என பெண்கள் கவலையோடும் கண்ணீரோடும் முறையிட்டார்கள்….iகட்டுரை அதற்கான சில வலழிகாட்டுதல்களை கொடுக்கிறது… சிறப்பு..
Why the Tatas, Ambanis and Adanis, the blue eyed boys of the Modi Govt, are getting credits at throwaway interest rates, which are being done hair cut at later dates before being finally written off without any penal action on the individuals cheating the lending institutions?.. Please elaborate in serial articles in the coming issues.
International finance capital is aggresively trying for a considerable micro finance market share in India.
They are using multiple agencies for performing deep research via obtaining details of women customers, their demographics, their income, investment and expenditure patterns, transaction and saving habits, loan portfolio and settlement habits.
Many have tie ups with PSBs for these researches and data sharing.
The BC model is used by the agencies of big capital for outreach, service delivery, loan disbursement and recovery.
Educating and organsing the women, pressurising govts to use PSBs, RRBs to increase the direct lending and for conducting loan camps are the need of the hour.
A very in depth study of the MF system prevailing and the bureaucrat controlled RBI’s tacit support brought out nicely. This should be brought to the public domain and debated upon.when various State Govts can bring out alternate measures why not the Central Govt.
நகை கடன்களில் கூட வங்கிகள் வெளி ஏஜன்சி மூலமாக கடன் வழங்குவதாக கூறி அவா்களுக்கு குறைந்த வட்டிக்கு வழங்கி அவா்கள் வாடிக்கையாளா்களுக்கு அதிக வட்டிக்கு கடன்”வழங்கும் நிலை அரங்கேறி வருகிறது.
இது ஒரு வகை கொள்ளை!