Classroom
oi-Kuntala Sarkar
The RBI advises on the regulations relating to borrowers of a microfinance loan. On the issue of microfinance loans, it is an important question, if all members of a household are required to become borrowers of a microfinance loan? The RBI says the guidelines will require an assessment of income and indebtedness at the household level. Thus, it will not be necessary to treat all members of the household as applicants or borrowers of a loan which may be granted to an individual member. Policies approved by the RE Board of Directors may include operational methodologies or frameworks for assessing the income and indebtedness of all household members.
Consumer loans
Consumer loans, such as the purchase of gadgets, meeting expenses at ceremonies, etc. without collateral, will also be treated as microfinance loans. The RBI informs that all unsecured loans to people belonging to low income households i.e. households with annual income up to Rs. 3,00,000 will be treated as microfinance loans. However, loans, backed by the mortgage of any security (such as gold, equipment, white goods, underlying assets, etc.), will not be treated as microfinance loans.
On the other hand, the instructions relating to a limit of 50% of the monthly repayment obligations of a household as a percentage of the monthly income of the household will apply to loans other than microfinance, granted to low-income households. In other words, the 50% limit will include both microfinance loans and other loans.
Borrowers must also be aware of credit facilities, not having an EMI feature to arrive at the total monthly repayment obligations, of the household. The central bank says policies approved by the ER board should cover these operational aspects on credit facilities that do not have EMI features. RBI advises, “One possible way could be to spread the annualized repayment obligations over twelve months to estimate the household’s monthly expenditure for debt repayment.”