In a strong push towards financial inclusion and responsible lending, the National Bank for Agriculture and Rural Development (NABARD) and the Reserve Bank of India (RBI) have initiated multiple programs to enhance financial literacy and streamline access to microfinance in rural areas.
Key Financial Literacy Initiatives
To empower rural communities, especially microfinance borrowers, NABARD and RBI have undertaken the following initiatives:
Financial Literacy Camps: NABARD has supported Financial and Digital Literacy Camps through rural bank branches and Financial Literacy Centres (FLCs) to educate rural populations about banking services, digital tools, cyber security, and government-backed social security schemes.
Centre for Financial Literacy (CFL): Launched by RBI in 2017, this initiative adopts community-led and participatory methods to spread financial knowledge. As of March 31, 2025, 2,421 CFLs have been set up nationwide, with each CFL typically covering three blocks.
Sponsored by NABARD, these are conducted with support from banks and State Rural Livelihoods Missions (SRLMs) to facilitate Self-Help Group (SHG) credit linkage, promoting stronger grassroots financial integration.
Simplified Microfinance Framework
To ease credit access and promote transparency in microfinance:
RBI has simplified the definition of microfinance loans. Now, collateral-free loans provided to households with annual income up to ₹3,00,000 qualify as microfinance loans.
Restrictions such as limits on loan amount per cycle and mandatory tenure requirements have been removed, offering borrowers flexibility based on need.
The requirement of lending 50% of loans for income-generating activities has been eliminated, allowing loans for medical, educational, or other urgent needs.
Measures to Protect Borrowers
RBI has taken proactive steps to curb borrower over-indebtedness:
A repayment ceiling has been established: Monthly loan obligations cannot exceed 50% of household income.
Revised recovery guidelines mandate fair recovery practices, with regulated entities (REs) required to establish grievance redressal mechanisms for recovery-related issues.
Interest rates are now deregulated, but REs must adopt a board-approved interest policy to ensure fair and transparent lending practices.
SROs Tighten Compliance in Microfinance Sector
Self-Regulatory Organisations (SROs) Sa-Dhan and MFIN are playing a critical role in compliance and borrower protection:
They issue guardrails to cap total borrower indebtedness and limit the number of lenders per borrower, mitigating risks of over-borrowing.
Regular reporting and monitoring ensure adherence to RBI norms and industry standards.
Enhanced Credit Reporting
RBI now mandates credit institutions (CIs) to report income and credit data of microfinance borrowers to credit information companies (CICs). This step improves credit assessments and ensures borrowers do not exceed the 50% income cap on repayments.
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