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

MUMBAI: Reserve Bank-appointed Malegam Committee today recommended interest rate cap of 24 per cent to be charged by the Microfinance Institutions (MFIs) with upper limit of individual loans at Rs 25,000 to streamline the sector.

The committee also suggested a separate category of the non-banking financial companies (NBFC-MFIs) for the microfinance institutions.

The RBI had constituted a high-level panel headed by Y H Malegam, a director on the central board of the RBI, to suggest steps for streamlining the microfinance finance sector which drew flak for overcharging and use of coercive methods to recover loans from small borrowers.

Besides a maximum interest rate of 24 per cent, the committee recommended that MFIs be allowed to levy only processing fee and insurance charges.