Big news for small loan takers, rules changed after RBI's strictness, will be implemented from January 1

The Network of Microfinance Institutions (MFIN), which provides small amount loans, on Monday announced some changes to lend more responsibly to the deprived sections of the society. This step has been taken after repeated strictness of the Reserve Bank of India (RBI) on the activities of the industry.

MFIN said in a statement that from January 1, members of the self-regulatory organization will ensure that the loan of a microfinance institution's customer is limited to three MFIs as against four at present. Also, the total loan liability of a borrower, including MFIs and retail loans considered unsecured, is limited to Rs 2 lakh.

The institute's chief executive and director Alok Mishra hoped that the new measures would make the sector 'more robust'. The Reserve Bank of India has expressed concern over many activities of MFIs in the last few months. This includes activities such as excessively high interest rates, giving multiple loans to one borrower and not depositing loan payments in the right accounts even after payment.

On October 21, RBI banned four units including Navi Finserv, DMI Finance, Arohan Financial Services and Ashirvad Micro Finance from approving and disbursing new loans due to improper activities. At the same time, many lenders are showing an increase in their NPA (non-performing asset) in the MFI segment.

According to MFIN guidelines, these financial institutions have also tightened the rules for lending to such customers of lenders who have come under the non-performing asset category. The guidelines state that no loan will be given to any such erring customer who has not repaid dues of more than Rs 3,000 for more than 60 days.

Currently this time limit is 90 days. Self-regulatory organizations have also asked lenders not to charge any fees other than processing fees and life insurance on loans. MFIN's statement said that the directors of regulated entities will closely monitor and review the interest rates to ensure that the efficiency benefits are passed on to the customers. According to the statement, "These measures are aimed at facilitating responsible lending, prioritizing customer safety and promoting the growth of the sector."