The Reserve Bank of India removed the ceiling in interest rates which were charged by microfinance forms. But Microfinance institutions don’t have absolute power as absolute power corrupts the person. So, microfinance institutions can’t impose usurious levis and Reserve Bank of India still has supervisory power to scrutiny, in case of unreasonable interest rate.
Now, we need to understand the definition of Microfinance Loan. Only then will we be able to understand the article. Microfinance Loan is a collateral free loan given to households.
Collateral free loan means the person is not required to pledge anything as security. Usually the loan provider demands security for the replacement of Loan in case of default. The Reserve Bank of India changed the limit which will take effect from April 1, 2022. Now, the upper limit is ₹ 3 lakh. But earlier the limits were ₹ 1.2 lakh for rural and ₹ 2 lakh for urban borrowers.
The reason behind the revision cap is to expand the market opportunities because the economy will boom when the cash flow will be increased.