Malegam panel proposes 24 pc cap on interest rate on MFI loans

Mumbai, Jan 19 (PTI) Reserve Bank-appointed MalegamCommittee today recommended interest rate cap of 24 per centto be charged by the Microfinance Institutions (MFIs) withupper limit of individual loans at Rs 25,000 to streamline thesector.

The committee also suggested a separate categoryof the non-banking financial companies (NBFC-MFIs) for themicrofinance institutions.

The RBI had constituted a high-level panel headed byY H Malegam, a director on the central board of the RBI, tosuggest steps for streamlining the microfinance finance sectorwhich drew flak for overcharging and use of coercive methodsto recover loans from small borrowers.

Besides a maximum interest rate of 24 per cent, thecommittee recommended that MFIs be allowed to levy onlyprocessing fee and insurance charges.