RBI cautions micro finance lenders against usurious interest rates
interest rates by exploiting the freedom the regulator offered after pushback from states in the past.
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The RBI has observed that while most lenders adhere to guidelines regarding the Key Facts Statement (KFS), some continue to impose undisclosed fees and high-interest rates, especially on small-value loans provided by microfinance institutions (MFIs) and non-banking financial companies (NBFCs).
“In general, we have observed that guidelines on Key Facts Statement (KFS)49 are followed, but a few REs still charge fees, etc. that are not specified or disclosed in the Key Facts Statement (KFS),” RBI Governor Shaktikanta Das said. “It has also been observed in some microfinance institutions and NBFCs that the interest rates on small value loans are high and appear to be usurious. The regulatory freedom enjoyed by the REs in respect of interest rates and charges should be used judiciously to ensure fair and transparent pricing of products and services.”
The key fact statement is designed to provide borrowers with essential loan information in a standardized, easy-to-understand format. It includes details such as the annual percentage rate (APR), an amortisation schedule, and all third-party charges, which are to be disclosed separately.
RBI started regulating interest rates and fees and other charges levied by MFIs from 2012.
