Independent Research and Policy Advocacy

Response to RBI’s Consultative Document on Regulation of Microfinance

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Any measure aimed at addressing concerns of over-indebtedness for low-income households (LIHs), including the requirement to assess household-level income and debt, should be made applicable to all loans extended by all registered entities (REs) to the segment. These include microfinance loans or other retail credit and secured and unsecured loans. RBI should clarify the reasoning behind the proposed 50% debt-to-income limit to facilitate further discussion. A possible alternative could be to define a ‘debt-to-disposable income’ threshold which would be a better indicator for debt serviceability than gross income. Disposable income here would be net of routine expenses, including debt repayments, and a liquidity buffer.

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