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NBFC / MICROFINANCE

About nbfc-mfi.

What is an NBFC-MFI?

An NBFC-MFI is defined as a non-deposit taking NBFC (other than a company licensed under Section 25 of the Indian Companies Act, 1956) with Minimum Net Owned Funds of Rs.5 crore (for NBFC-MFIs registered in the North Eastern Region of the country, it will be Rs. 2 crore) and having not less than 85% of its net assets as “qualifying assets”.

documents required.

What are the documents
required for registration as
NBFC-MFI?

The checklist with respect to application for seeking Certificate of Registration from the Reserve Bank have been uploaded in the RBI website www.rbi.org.in → Sitemap → NBFC List → Forms/Returns → Checklists → Documents required for registration of NBFC-MFI – New Companies and Documents required for registration of NBFC-MFI (Existing NBFCs) Checklists mentioned are indicative and not exhaustive. Bank can, if necessary, call for any further documents to satisfy themselves on the eligibility for obtaining registration as NBFC-MFI.

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Can NBFC-MFIs lend funds for
personal use/emergencies?

A part (i.e. maximum of 30%) of the aggregate amount of loans may be extended for other purposes such as housing repairs, education, medical and other emergencies. However aggregate amount of loans given for income generation should constitute at least 70 per cent of the total loans of the NBFC-MFI.

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What are “Net Assets” and “Qualifying Assets”?


Net Assets: “Net assets” are defined as total assets other than cash and bank balances and money market instruments. Qualifying Assets: Loan disbursed without collateral by an NBFC-MFI to a borrower with a household annual income not exceeding Rs. 60,000 (rural) or Rs. 1,20,000 (urban and semi-urban) and total indebtedness not exceeding Rs. 50,000 will be a qualifying asset provided

loan amount does not exceed Rs. 35,000 in the first cycle and Rs. 50,000 in subsequent cycles

tenure of the loan not to be less than 24 months for loan amount in excess of Rs. 15,000 with prepayment without penalty

aggregate amount of loans, given for income generation, is not less than 70 per cent of the total loans given by the MFIs and

loan is repayable on weekly, fortnightly or monthly installments at the choice of the borrower.

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Is there any restriction on pricing of the loan/interest recoverable on such loans?

The interest rates charged by an NBFC-MFI to its borrowers will be the lower of the following :

Cost of funds, plus margin

Cost of funds means interest cost and margin is a mark up of a maximum of 10 per cent for large NBFCs-MFI and 12 per cent for others. Large NBFCs-MFI are those with asset sizes above ` 100 crore

he average base rate of the five largest commercial banks by assets multiplied by 2.75

The average of the base rates of the five largest commercial banks shall be advised by the Reserve Bank on the last working day of the previous quarter, which shall determine interest rates for the ensuing quarter. The Bank will announce the applicable average base rate on March 31, 2014 and every quarter end thereafter.

What happens to the existing NBFCs who intend to convert to NBFC-MFI but do not fulfill the minimum net owned funds criteria of Rs. 5 crore at present?

Existing NBFCs seeking conversion to NBFC-MFI category, were required to maintain Net Owned Funds (NOF) at Rs.3 crore by March 31, 2013 and at Rs 5 crore by March 31, 2014, failing which they must ensure that lending to the Microfinance sector i.e. individuals, SHGs or JLGs which qualify for loans from MFIs, is restricted to 10 per cent of the total assets. For NBFCs operating in North Eastern Region, the minimum NOF to be maintained is Rs. 2 Crore

NBFC TO MICROFINANCE

An NBFC which does not qualify as an NBFC-MFI shall not extend loans to micro finance sector, which in aggregate exceed 10% of its total assets.

What should a customer keep in mind when he/she takes a loan from an NBFC-MFI?

The customer must keep in mind the following:

  • The borrower should ensure that he gets a loan card from the NBFC-MFI reflecting :
    1. The effective rate of interest charged;
    2. All other terms and conditions attached to the loan;
    3. Information which adequately identifies the borrower;
    4. Acknowledgement by the NBFC-MFI of all repayments including installments received and the final discharge;
  • The interest charged to customer is calculated on a reducing balance basis.

Is there any cap on an individual membership with SHG/JLG
and/or number of MFIs from whom a SHG/JLG/an individual
can borrow?

A borrower can be a member of only one SHG/JLG or borrow as an individual. He can borrow from NBFC-MFIs as a member of a SHG or a member of a JLG or borrow in his individual capacity. Further, a SHG or JLG or individual cannot borrow from more than 2 MFIs.

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Is it essential for NBFC-MFIs to become a member of a Credit Information Company?

Every NBFC-MFI has to be a member of at least one Credit Information Company (CIC) established under the CIC Regulation Act 2005, provide timely and accurate data to the CICs and use the data available with them to ensure compliance with the conditions regarding membership of SHG / JLG, level of indebtedness and sources of borrowing. While the quality and coverage of data with CICs will take some time to become robust, the NBFC-MFIs may rely on self certification from the borrowers and their own local enquiries on these aspects as well as the annual household income.

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NBFC TO MICROFINANCE

There must be a minimum period of moratorium between the grant of the loan and the due date of the repayment of the first installment. The moratorium shall not be less than the frequency of repayment. For example, in the case of weekly repayment, the moratorium shall not be less than one week.

Taking into cognizance, the alleged coercive methods of recovery adopted by MFIs, RBI has mandated that NBFC-MFIS shall ensure that a Code of Conduct and systems are in place for recruitment, training and supervision of field staff, incorporating the Guidelines on Fair Practices Code issued for NBFCs vide circular CC No.266 dated March 26, 2012 as amended from time to time. Also, Recovery should normally be made only at a central designated place. Field staff shall be allowed to make recovery at the place of residence or work of the borrower only if borrower fails to appear at central designated place on 2 or more successive occasions.

Is it essential for an NBFC-MFI? to be a member of the Self Regulatory Organisation (SRO)?

Membership to the SRO is not mandatory. However, NBFC-MFIs are encouraged to voluntarily become members of at least one SRO.




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