Of interest rates, margin caps & poverty lending – Paper on impact of RBI Microfinance Policy

How the RBI policy will affect access to microcredit by low-income clients?

Last week, EDA Rural Systems Private Limited and Micro‐Credit Ratings International Ltd released a paper titled Of interest rates, margin caps & poverty lending. The paper undertakes a time series analysis of the yields on the loan portfolio of the 16 largest MFI’s in India that account for over 80% of all the MFI services provided in the country.

Historical yield data is then compared with the pricing and margin caps announced by the RBI to determine the feasibility of MFI operations within the new regulatory regime. The paper also looks at the income limit and maximum loan size criteria to determine their relevance for the availability of microcredit to various income segments of the population.

The paper presents some key findings on interest rates, margin caps, and poverty lending.