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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


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