A microfinance loan is defined as a collateral-free loan given to a household having Annual household income up to Rs 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 (either through physical or digital channels), provided to low-income households, i.e., households having annual income up to Rs 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.
Repayment periodicity on microfinance loans shall be decided on case to case basis as per borrowers’ requirement & repayment capacity. “Microfinance” loans are meant to be provided to low income households i.e. households having annual income up to Rs 3,00,000. Further, these loans are to be granted without any collateral. As such, these loans carry risk of repayment. Hence, repayment period shall be as below: -
| Loan amount | Repayment period |
| Up to Rs 30000 | 24 months |
| Above Rs 30000 to Rs 50000 | 48 months |
| Above Rs 50000 to Rs 500000 | 60 months |
In case income of the applicant justifies lower repayment period, branches may stipulate lower tenure as may be determined by the branch.
In accordance with an indicative methodology for assessment of household income as provided in Annex I of master directions issued by Reserve Bank of India, assessment of household income shall be done as under: -
For undertaking the income assessment of a low-income household, information related to following parameters shall be captured while assessment of loan proposal.
| Composition of the household i.e. | |
| Number of earning members | |
| Number of non-earning members | |
| Type of accommodation (owned/ rented, etc.) | |
|---|---|
| Availability of basic amenities (electricity, water, toilet, sewage, LPG connection, etc.) | |
| Availability of other assets (land, livestock, vehicle, furniture, smartphone, electronic items, etc.) |
| S. No | Primary source of income: - | |
| I | Sector of work (Agriculture & allied activities, trading, manufacturing, services, etc.) | |
| II | Nature of work (Self-employed or salaried, regular or seasonal, etc.) | |
| III | Frequency of income (daily/ weekly/ monthly) | |
| IV | Months/ days of employment over last one year | |
| V | Self-reported monthly income | |
| Vi | Average monthly income (to be derived from (iv) & (v) above) | |
| Other sources of income : - | ||
| I | Remittance | |
| II | Rent/ Lease | |
| III | Pension | |
| IV | Government transfer | |
| V | Scholarship | |
| Vi | Others (specify details) |
The income assessment as above shall be carried out for all earning members with respect to all sources (primary or secondary) of income. While assessing income of all members from all sources, it shall be ensured that there is no double counting of income such as counting of salary income of one migrant member also as remittance income for the household.
While the income computation may be done on a monthly basis, the income assessment for all members and sources may be carried out over a period of minimum one year to ascertain the stability of the household income.
(a) Regular monthly expenses (food, utilities, transport, house/ shop rent, clothing, regular medical costs, school/ college fees, etc.)
(b) Irregular expenses over last one year (medical expenses, house renovation, purchase of household goods, functions, etc.)
Self-reported income at 1(ii) above may be corroborated with the profile of household at 1(i) and household expenses at 1(iii). Further, household income shall also be verified from other sources (bank account statements of the borrowers, group members, other references in the vicinity, etc.).
Submission of information regarding household income to the Credit Information Companies (CICs).
Bank shall mandatorily submit information regarding household income to the Credit Information Companies (CICs). Reasons for any divergence between the already reported household income and assessed household income shall be specifically ascertained from the borrower/s before updating the assessed household income with CICs.
Limit on Loan Repayment Obligations of a Household
The limit on the outflows on account of repayment of monthly loan obligations of a household as a percentage of the monthly household income shall be maximum 50 per cent of the monthly household income. The computation of loan repayment obligations shall take into account all outstanding loans (collateral-free microfinance loans as well as any other type of collateralized loans) of the household.
The outflows capped at 50 per cent of the monthly household income shall include repayments (including both principal as well as interest component) 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 per cent, shall be allowed to mature. However, in such cases, no new loans shall be provided to these households till the prescribed limit of 50 per cent is complied with.
Timely and accurate data should be provided to the CICs and use the data available with them to ensure compliance with the level of indebtedness. Besides, the bank shall also ascertain the same from other sources such as declaration from the borrowers, their bank account statements and local enquiries.
Pricing of Loans
For the loans sanctioned under this category ROI shall be 7.25% p.a. (floating) or as may be decided by Board of Directors from time to time. The pricing related information shall be disclosed to prospective borrower in a standardized simplified factsheet specimen of which is as provided below: -
Date: XXX
Lender’s Name: XXX
Applicant Name: XXX
| Sr. no. | Parameter | Details |
|---|---|---|
| (i) | Loan amount (amount disbursed to the borrower) (in Rupees) | 20000 |
| (ii) | Total interest charge during the entire tenure of the loan (in Rupees) | 3274 |
| (iii) | Other up-front charges (break-up of each component to be given below) (in Rupees) | 400 |
| (a) | Processing fees (in Rupees) | 160 |
| (b) | Insurance charges (in Rupees) | 240 |
| (c) | Others (if any) (in Rupees) | |
| (iv) | Net disbursed amount ((i)-(iii)) (in Rupees) | 19600 |
| (v) | Total amount to be paid by the borrower (sum of (i), (ii) and (iii)) (in Rupees) | 23674 |
| (vi) | Effective annualized interest rate (in percentage) (computed on net disbursed amount using IRR approach and reducing balance method) | 17.07% |
| (vii) | Loan term (in months) | 24 |
| (viii) | Repayment frequency by the borrower | Monthly |
| (ix) | Number of installments of repayment | 24 |
| (x) | Amount of each installment of repayment (in Rupees) | 970 |
| Details about Contingent Charges | ||
| (xi) | Borrower shall not be charged any penalty on prepayment of loan at any time. | |
| (xii) | Penal charges in case of delayed payments (if any) | |
| (xiii) | Other charges (if any) |
| Installment No. | Outstanding
Principal (in Rupees) |
Principal (in Rupees) |
Interest (in Rupees) |
Installment (in Rupees) |
|---|---|---|---|---|
| 1 | 20000 | 720 | 250 | 970 |
| 2 | 19,280 | 729 | 241 | 970 |
| 3 | 18,552 | 738 | 232 | 970 |
| 4 | 17,814 | 747 | 223 | 970 |
| 5 | 17,067 | 756 | 213 | 970 |
| 6 | 16,310 | 766 | 204 | 970 |
| 7 | 15,544 | 775 | 194 | 970 |
| 8 | 14,769 | 785 | 185 | 970 |
| 9 | 13,984 | 795 | 175 | 970 |
| 10 | 13,189 | 805 | 165 | 970 |
| 11 | 12,384 | 815 | 155 | 970 |
| 12 | 11,569 | 825 | 145 | 970 |
| 13 | 10,744 | 835 | 134 | 970 |
| 14 | 9,909 | 846 | 124 | 970 |
| 15 | 9,063 | 856 | 113 | 970 |
| 16 | 8,206 | 867 | 103 | 970 |
| 17 | 7,339 | 878 | 92 | 970 |
| 18 | 6,461 | 889 | 81 | 970 |
| 19 | 5,572 | 900 | 70 | 970 |
| 20 | 4,672 | 911 | 58 | 970 |
| 21 | 3,761 | 923 | 47 | 970 |
| 22 | 2,838 | 934 | 35 | 970 |
| 23 | 1,904 | 946 | 24 | 970 |
| 24 | 958 | 958 | 12 | 970 |
There shall be no pre-payment penalty on microfinance loans. Penalty, if any, for delayed payment shall be applied on the overdue amount and not on the entire loan amount.
The minimum, maximum and average interest rates charged on microfinance loans shall be displayed in all offices, in the literature (information booklets/ pamphlets) and details on website. This information shall also be included in the supervisory returns and subjected to supervisory scrutiny.
Any change in interest rate or any other charge shall be informed to the borrower well in advance and these changes shall be effective only prospectively.
Other parameters
Applicants having regular source of income from organized sectors shall not be sanctioned loan under this category.
Minimum shares of Rs 1000 shall be subscribed by borrowers.
For loan up to Rs 1.00 lakh, minimum 1 guarantor shall be obtained and for loan above Rs 1.00 lakh up to Rs 5.00 lakh, minimum 2 guarantors shall be obtained.
Guarantors shall become nominal members of our bank.
