Household income limit for micro loans should be raised to ₹5 lakh, demand NBFCs: Report

Non-banking finance companies and microfinance institutions want the Reserve Bank of India to reexamine the threshold relating to annual household income limit for giving micro loans. They want this limit to be raised from the current ₹3 lakh to about ₹5 lakh, reported Business Line.

They have made this demand in view of growing needs of individual borrowers.

The last time criteria relating to the annual household income limit for giving microloans to individual borrowers was revised was in 2022, when it was upped from ₹1.25 lakh in rural areas and ₹2 lakh in urban and semi-urban areas to a uniform ₹3 lakh.

Manoj Kumar Nambiar, Managing Director, Arohan Financial Services Ltd, and Vice-Chairperson of Microfinance Industry Network (MFIN), emphasises that the request to revise the annual household income limit is part of the ongoing discussions with the RBI.

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“Typically, they don’t do it on an annual basis, but in about two to three years’ time. But they do re-look at the limit...I’m sure after the end of this financial year, when we look at the numbers and when we also index it with the government schemes/ inflation, we will be able to make a case to the RBI to re-look at the limit,” said Nambiar.

What is a microfinance loan?

A microfinance loan is a collateral-free loan given to a household having annual household income up to ₹3 lakh, according to the Reserve Bank of India. The household for this purpose refers to an individual family unit — husband, wife and their single children.

Average microfinance loan size has increased to ₹47,374 in Q3 (October-December) FY24 against ₹41,123 in the year-ago period and ₹39,512 in Q3 FY22, per latest MFIN data.

“Microfinance operations added more than one crore unique clients over the last financial year to its fold,” said Alok Misra, CEO & Director, MFIN.