Cashpor Micro Credit, a prominent microfinance lender, and Sanghamithra Rural Financial Services will have to get an NBFC-MFI licence under the Reserve Bank of India’s revised rules for micro-lenders with over Rs 100 crore in assets.
These are not-for-profit companies registered under Section 8 of the Companies Act, 2013. The RBI has withdrawn tax exemptions for such lenders and told them to register themselves as NBFC-MFIs within three months and align their business policies with the revised definition of microfinance loans.
Cashpor is the biggest among Section 8 companies with Rs 3,591 crore of assets under management (AUM) at the end of December 2021, according to data shared by industry association Sa-Dhan.
"As per our interpretation of the (RBI) circular, we can apply for registration under the category of NBFC-MFI without being required to convert from not-for-profit MFI to for-profit MFI. Hence, we will continue to work as a not-for-profit section 8 company registered with RBI under the category of NBFC-MFI," said Mukul Jaiswal, managing director at Cashpor.
“The transformation into NBFC-MFI would help these lenders raise funds at a lower cost,” the association's executive director P Satish told ET.
Shri Kshethra Dharmasthala Rural Development Project (SKDRDP) is the country’s largest MFI with assets under management (AUM) nearing Rs 16,000 crore. But it being a trust, the new RBI regulation will not apply to it, according to people tracking the sector.
There are some 28 not-for-profit companies engaged in microfinance, of which 80 percent have AUM less than Rs 20 crore, data from Sa-Dhan showed. Madhya Pradesh’s Samhita Community Development Services has an AUM of Rs 128 crore, while its own portfolio is just about Rs 8 crore, and therefore RBI’s new rule will not affect it.
The RBI said any collateral-free loan to people with annual household income of up to Rs 3 lakh will be classified as microfinance. It also said that monthly repayment obligations of a borrower should not exceed 50% of the monthly household income.
“The NBFC-MFI licence will help to expand and facilitate getting bank loans more easily,” said RD Gadiyappanavar, chief executive of Bengaluru-headquartered Sanghamithra, which had its gross loan portfolio at Rs 182 crore at the end of December 2021.
“We had earlier debated about getting an NBFC-MFI licence, but we remained a Section 8 entity as we did not want to lose our ‘not-for-profit’ identity,” the CEO said. “Now, even if we transform ourselves into an NBFC-MFI following RBI’s direction, we plan to continue with our `not-for-profit’ ideology.”
The RBI has said that companies which don’t comply with the regulations prescribed for NBFC-MFIs must submit a board-approved plan, with a roadmap to meet the prescribed regulations, along with an application for registration.
The RBI’s condition is part of its move to harmonise microfinance regulations for all kinds of lenders, including banks, non-banking finance companies and small finance banks, to be effective from April 1. The central bank has deregulated the lending rates offered by NBFC-MFIs to bring them at par with all other lenders engaged in microfinance.
“RBI has reposed faith in micro-lenders. Now the lenders will have to rise to the confidence shown by the regulator,” Satish said.