Skip to main content

Credit Facilities – Microfinance Loans

Reserve Bank of India (RBI) has issued directions on credit facilities offered by various regulated entities. This article summarises the directions applicable to microfinance loans.

To whom are the directions applicable?

The directions are applicable to the following Regulated Entities (REs) –

  • Commercial Banks 
  • Small Finance Banks (SFBs)
  • Local Area Banks (LABs)
  • Regional Rural Banks (RRBs)
  • Primary (Urban) Co-operative Banks (UCBs)
  • Rural Co-operative Banks –
    • State Co-operative Banks (StCBs)
    • Central Co-operative Banks (CCBs)
  • Non-Banking Financial Companies (NBFCs) for all layers –
    • Deposit taking NBFC (NBFC-D)
    • NBFC-Investment and Credit Companies (NBFC-ICC)
    • NBFC-Factor 
    • NBFC-Micro Finance Institutions (NBFC-MFI) 
    • NBFC-Infrastructure Finance Company (NBFC-IFC) 
    • Infrastructure Debt Fund-NBFC (IDF-NBFC) 
    • Housing Finance Company (HFC) 

To whom are the directions partially applicable?

The prudential regulations are not applicable to ‘NBFCs-Base Layer (NBFC-BL) having customer interface but not availing public funds’, however, conduct-related regulations are applicable to such NBFCs.

To whom are the directions not applicable?

The directions are not applicable to –

  • Mortgage Guarantee Company (MGC)
  • NBFC-Account Aggregator (NBFC-AA)
  • Standalone Primary Dealer (SPD) 
  • Non-Operative Financial Holding Company (NOFHC) 
  • NBFC not availing public funds and not having any customer interface

What is a microfinance loan?

  • A microfinance loan is defined as a collateral-free loan given to a household having annual household income up to ₹3,00,000. For this purpose, the household shall mean an individual family unit, i.e., husband, wife and their unmarried children.
  • All collateral-free loans, irrespective of end use and mode of application / processing / disbursal (through physical / digital channels), provided to low-income households, i.e., households having annual income up to ₹3,00,000 shall be considered as microfinance loans.
  • To ensure collateral-free nature of the microfinance loan, the loan shall not be linked with a lien on the deposit account of the borrower or backed by hypothecation of any security.

How is household income assessed?

  • Each RE shall put in place a board-approved policy for assessment of household income.
  • Self-regulatory organisations (SROs) and other associations / agencies may also develop a common framework based on the indicative methodology provided by RBI. The REs may adopt / modify this framework suitably as per their requirements with the approval of their boards.
  • Each RE shall mandatorily submit information regarding household income to the Credit Information Companies (CICs).

What shall be the limit on loan repayment obligations of a household?

  • The outflows on account of repayment of monthly loan obligations of a household shall be limited to a maximum of 50% of the monthly household income.
  • Any expected future income from the asset / activity financed by a microfinance loan shall not be included in the household income for the purpose of calculating the indebtedness of the household.
  • The computation of loan repayment obligations shall take into account all outstanding loans (collateral-free microfinance loans as well as any other type of collateralised loans) of the household. 
  • The outflows capped at 50% of the monthly household income shall include repayments (both principal and interest) towards all existing loans as well as the loan under consideration.
  • Existing loans, for which outflows on account of repayment of monthly loan obligations of a household as a percentage of the monthly household income exceed the limit of 50%, shall be allowed to mature. However, in such cases, no new loans shall be provided to these households till the prescribed limit of 50% is complied with.

What are other directions?

  • There shall be no pre-payment charge levied on microfinance loans.
  • Charges, if any, for delayed payment shall be applied on the overdue amount and not on the entire loan amount. 


References

Reserve Bank of India. (2025, November 28). 'Reserve Bank of India (Commercial Banks – Credit Facilities) Directions, 2025 (Updated as on April 01, 2026)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13156&Mode=0

Reserve Bank of India. (2025, November 28). 'Reserve Bank of India (Commercial Banks – Responsible Business Conduct) Directions, 2025 (Updated as on April 1, 2026)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13140&Mode=0

Reserve Bank of India. (2025, November 28). 'Reserve Bank of India (Local Area Banks – Credit Facilities) Directions, 2025 (Updated as on April 01, 2026)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13078&Mode=0

Reserve Bank of India. (2025, November 28). 'Reserve Bank of India (Local Area Banks – Responsible Business Conduct) Directions, 2025 (Updated as on April 1, 2026)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13063&Mode=0

Reserve Bank of India. (2025, November 28). 'Reserve Bank of India (Non-Banking Financial Companies – Credit Facilities) Directions, 2025 (Updated as on April 1, 2026)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12957&Mode=0

Reserve Bank of India. (2025, November 28). 'Reserve Bank of India (Non-Banking Financial Companies – Responsible Business Conduct) Directions, 2025 (Updated as on April 1, 2026)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12942&Mode=0

Reserve Bank of India. (2025, November 28). 'Reserve Bank of India (Regional Rural Banks – Credit Facilities) Directions, 2025 (Updated as on April 01, 2026)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13053&Mode=0

Reserve Bank of India. (2025, November 28). 'Reserve Bank of India (Regional Rural Banks – Responsible Business Conduct) Directions, 2025 (Updated as on April 1, 2026)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13039&Mode=0

Reserve Bank of India. (2025, November 28). 'Reserve Bank of India (Rural Co-operative Banks – Credit Facilities) Directions, 2025 (Updated as on April 01, 2026)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13002&Mode=0

Reserve Bank of India. (2025, November 28). 'Reserve Bank of India (Rural Co-operative Banks – Responsible Business Conduct) Directions, 2025 (Updated as on April 1, 2026)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12987&Mode=0

Reserve Bank of India. (2025, November 28). 'Reserve Bank of India (Small Finance Banks – Credit Facilities) Directions, 2025 (Updated as on April 01, 2026)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13124&Mode=0

Reserve Bank of India. (2025, November 28). 'Reserve Bank of India (Small Finance Banks – Responsible Business Conduct) Directions, 2025 (Updated as on April 1, 2026)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13108&Mode=0

Reserve Bank of India. (2025, November 28). 'Reserve Bank of India (Urban Co-operative Banks – Credit Facilities) Directions, 2025 (Updated as on April 01, 2026)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13028&Mode=0

Reserve Bank of India. (2025, November 28). 'Reserve Bank of India (Urban Co-operative Banks – Responsible Business Conduct) Directions, 2025 (Updated as on April 1, 2026)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13013&Mode=0


Follow at - Telegram   Instagram   LinkedIn   X   Facebook

Labels:

Comments

Post a Comment

Popular Posts

Trade Receivables Discounting System (TReDS)

Reserve Bank of India (RBI) has issued the directions on Trade Receivables Discounting System (TReDS). What is TReDS? TReDS is a technology platform on a digital or electronic network for facilitating factoring of trade receivables through multiple financiers. What is a Factoring Unit? Factoring unit refers to trade receivable in the form of invoice / bill uploaded either by the seller (in the case of factoring) or by the buyer (in case of reverse factoring), as the case may be. Who are the participants in TReDS? Seller – Micro, Small and Medium Enterprise (MSME) Buyer – any person liable to the seller, whether under a contract or otherwise, against an invoice or bill of exchange, to pay any trade receivable Financier – all entities / institutions permitted to undertake factoring business under the Factoring Regulation Act, 2011 Insurance companies  Credit Guarantee Fund Trust notified by the Government of India Who can operate TReDS platforms? An entity shall seek authorisation fr...
Post a Comment
Read more

Payment of Agency Commission to Agency Banks (ABs) and Disbursement of Government Pension by ABs

Reserve Bank of India (RBI) has issued guidelines on the conduct of Government business by Agency Banks (ABs), payment of agency commission to ABs and disbursement of Government pension by ABs. Who are ABs? ABs mean all Public Sector Banks (PSBs), scheduled Private Sector Banks (PVBs), scheduled Payments Banks (PBs), and scheduled Small Finance Banks (SFBs) appointed by the RBI under Section 45 of the RBI Act, 1934, by mutual agreement, to carry out Government banking business of the Central Government (CG) / State Governments (SGs). What is agency commission? Agency commission means the remuneration paid by the RBI to an AB in consideration of it acting as an agent of the RBI in the conduct of general banking business of the CG and the SGs at the places and in the manner specified in the agreement between the RBI and the bank, with the exception of the functions relating to the management of the public debt. What are the guidelines on appointment of ABs? Any eligible bank which intend...
Post a Comment
Read more

Kisan Credit Card (KCC) Scheme

Reserve Bank of India (RBI) has issued directions on Kisan Credit Card (KCC) Scheme. To whom are the directions applicable? The directions are applicable to the following entities – Commercial Banks (excluding overseas branches of Indian banks) Small Finance Banks (SFBs) Regional Rural Banks (RRBs) Rural Co-operative Banks – State Co-operative Banks (StCBs) Central Co-operative Banks (CCBs) To which loans shall the directions be applicable? The directions shall be applicable to loans sanctioned under the KCC Scheme with effect from January 01, 2027.  What are the crop seasons? Crop season means the period up to harvesting and marketing of the crops raised. Short duration crops shall mean crops with anticipated period from sowing to marketing up to 12 months. Long duration crops mean crops which are not short duration crops. The crop season for long duration crops i.e., anticipated period from sowing to marketing is more than 12 months and up to 18 months. For the purpose of the KCC...
Post a Comment
Read more

Lead Bank Scheme (LBS)

Reserve Bank of India (RBI) has issued guidelines on the Lead Bank Scheme (LBS). Who is a Lead Bank? RBI designates a commercial bank as Lead Bank in each district, to coordinate the efforts of the banks, Government, National Bank for Agriculture and Rural Development (NABARD) and other stakeholders at the district level to improve credit flow to the priority sectors and promote financial inclusion in the district. 12 public sector banks and 2 private sector banks (Jammu & Kashmir Bank and ICICI Bank) have been assigned lead bank responsibilities, covering 778 districts across the country. What appointments are made under the LBS? Every lead bank shall appoint a Lead District Manager (LDM) in each district where it has the lead bank responsibility, to exclusively oversee and coordinate the implementation of the LBS in the district. NABARD shall appoint a District Development Manager (DDM) for each district to act as a liaison between NABARD and the district-level banking and financ...
Post a Comment
Read more

Deposits between a person resident in India and a person resident outside India

Reserve Bank of India (RBI) has updated the regulations on deposits between a person resident in India and a person resident outside India. What are the restrictions on deposits between a person resident in India and a person resident outside India? No person resident in India shall accept any deposit from, or make any deposit with, a person resident outside India. However, the following deposits are exempted – Deposits held in rupee accounts maintained by foreign diplomatic missions and diplomatic personnel and their family members in India with an authorised dealer. Deposits held by diplomatic missions and diplomatic personnel in special rupee accounts namely Diplomatic Bond Stores Account to facilitate purchases of bonded stocks from firms and companies who have been granted special facilities by customs authorities for import of stores into bond. The funds in the account may be repatriated outside India without the approval of the RBI. Deposits held in accounts maintained in foreig...
Post a Comment
Read more