RBI raises microfinance limits

MUMBAI: The Reserve Bank of India (RBI) has liberalized the extant eligibility rules for microfinance beneficiaries to allow wider range of recipients to be covered by this mode of financial inclusion.

The RBI has been trying to expand the scope and reach of credit in the economy to stimulate aggregate demand and to sustain the growth impetus. As part of that effort, the central bank announced in its statement on development and regulatory policies, which was issued along with Friday’s monetary policy statement, that both the maximum household income criteria and loan amount are being increased to improve the coverage of microfinance.

The income limit for each rural household to be eligible for microfinance has now been increased from ₹1 lakh to ₹1.25 lakh, and from ₹1.6 lakh to ₹2 lakh for urban and semi-urban areas. This is expected to bring a larger number of rural, semiurban and urban households under the fold of microcredit. Second, the RBI has also increased the lending limit for each eligible borrower from ₹1 lakh to ₹1.25 lakh. Both these eligibility measures are necessary to qualify a loan as a microfinance asset. The RBI had last revised these eligibility limits in 2015.

Both measures are expected to expand the pool of beneficiaries at the bottom of the pyramid, as well as increase the flow of credit in absolute amounts through this channel.