March 14, 2022
All Commercial Banks (including Small Finance Banks,
Local Area Banks and Regional Rural Banks) excluding Payments Banks
All Primary (Urban) Co-operative Banks/ State Co-operative Banks/
District Central Co-operative Banks
All Non-Banking Financial Companies (including Microfinance Institutions
and Housing Finance Companies)
Madam/ Dear Sir,
Please refer to paragraph 8 of the Statement on Developmental and Regulatory Policies announced as a part of the Bi-monthly Monetary Policy Statement for 2020-21 dated February 5, 2021, regarding review of the regulatory framework for microfinance.
- A consultative document on regulation of microfinance loans was issued for public comments on June 14, 2021. Based on the feedback received, it has now been decided to put in place the directions for microfinance loans which are enclosed.
Yours faithfully,
(J.P. Sharma)
Chief General Manager
March 14, 2022
Master Direction – Reserve Bank of India (Regulatory Framework for Microfinance
Loans) Directions, 2022
In exercise of the powers conferred by Section 21, Section 35A and Section 56 of the Banking Regulation Act, 1949; Chapter IIIB of the Reserve Bank of India Act, 1934; and Sections 30A and Section 32 of the National Housing Bank Act, 1987, the Reserve Bank, being satisfied that it is necessary and expedient in the public interest so to do, hereby, issues the directions hereinafter specified.
- 1. Short Title and Commencement
- 1.1 These directions shall be called the Reserve Bank of India (Regulatory Framework for Microfinance Loans) Directions, 2022.
1.2 These directions shall be effective from April 01, 2022, subject to stipulations as at paragraphs 5.3 and 9.3.
2. Applicability
2.1 The provisions of these directions shall apply to the following entities:
(i) All Commercial Banks (including Small Finance Banks, Local Area Banks, and Regional Rural Banks) excluding Payments Banks;
(ii) All Primary (Urban) Co-operative Banks/ State Co-operative Banks/ District Central Co-operative Banks; and
(iii) All Non-Banking Financial Companies (including Microfinance Institutions and Housing Finance Companies).
2.2 The entities mentioned at points 2.1(i) to 2.1(iii) above are hereafter referred to as ‘Regulated Entities (REs)’ for the purpose of these directions.
3. Definition of Microfinance Loan
3.1 A microfinance loan is defined as a collateral-free loan given to a household having annual household income up to ₹3,00,000. For this purpose, the household shall mean an individual family unit, i.e., husband, wife and their unmarried children.
3.2 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 ₹3,00,000, shall be considered as microfinance loans.
3.3 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.
3.3 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.
4. Assessment of Household Income
4.1 Each RE shall put in place a board-approved policy for assessment of household income. An indicative methodology for assessment of household income is provided in
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