With RBI removing the caps on the pricing of small loans given by NBFC-MFIs, the playing field has been made level for all players in the microfinance space.
Loans will be underwritten on a risk-based analysis, and the lender will charge a risk premium to the borrower.
The removal of the interest rate ceiling—10-12 ppts above the institution’s cost of funds, or 2.75X the average base rate of the five largest commercial banks, whichever is lower—will make the players compete on loan pricing and benefit the borrowers.