MFIs urge RBI to drop urban, rural difference for borrowers

Fix income limit at ₹2 lakh p.a., revise periodically: Sa-Dhan

August 10, 2021 11:04 pm | Updated August 11, 2021 04:57 pm IST - NEW DELHI

Microfinance lenders have urged the Reserve Bank of India (RBI) to drop the distinction between urban and rural households in its proposed new definition of eligible borrowers and allow the use of ration cards to identify households.

Currently, a microfinance borrower is identified by annual household income not exceeding ₹1.25 lakh for rural areas and ₹2 lakh for urban and semi-urban areas.

As per fresh norms drafted for the sector in June, the RBI proposed retaining these thresholds while tweaking the definition of households in line with that used by the National Sample Survey Office — a group of persons normally living together and taking food from a common kitchen.

Sa-Dhan, a self-regulatory body representing microfinance institutions (MFIs), has suggested that the central bank peg the annual income limit at ₹2 lakh for both urban and rural households, and revise the threshold based on inflation, perhaps once in 2-3 years.

Stressing that the household definition may not work for migrant labourers, Sa-dhan said that using the ration card as an identifier should help. “While they won’t be living together and using the common kitchen, migrant labour contribute in the household income.

“Therefore, exclusion of these members will give an improper household income assessment,” it noted, adding that around 19% of the rural population and 33% of the urban population, however, do not possess any ration card.



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