Microfinance loans

Microfinance is small-ticket lending to households that banks have traditionally not served, often to women, often through groups that meet regularly. It has funded a great many small businesses. It has also, at times, left households owing several lenders at once. The rules try to keep the first and prevent the second.

What the rules say

• The definition. A microfinance loan is “a collateral-free loan given to a household having annual household income up to ₹3,00,000.” A household is “an individual family unit, i.e., husband, wife and their unmarried children.”
• A cap on repayments. A lender must limit the household’s loan repayments, “subject to a limit of maximum 50 per cent of the monthly household income.”
• Every loan counts. The repayments counted “shall include repayments (including both principal as well as interest component) towards all existing loans as well as the loan under consideration.”
• No prepayment charge, and limited late fees. There is “no pre-payment charge levied on microfinance loans. Charges, if any, for delayed payment shall be applied on the overdue amount and not on the entire loan amount.”
• Pricing must be shown. Borrowers receive a loan card that includes a “Simplified factsheet on pricing”.
• No fixed rate cap, but a standard. “Interest rates and other charges / fees on microfinance loans should not be usurious.”
• Recovery hours are tighter. Prohibited conduct includes “Persistently calling the borrower and/ or calling the borrower before 9:00 a.m. and after 6:00 p.m.”

Why the household cap matters

The cap is the same idea as our Debt Domino Effect, written into regulation: no single loan is the problem, so the test is applied to all of them together. It only works if every lender knows about every other loan, which is one reason lenders report to credit bureaus.

What we could not confirm

• The ₹3,00,000 income threshold appears in the mid-2026 texts we read. A later version of the Directions for banks exists that we could not open, so check the source if the exact figure matters to you.
• Limits on how many lenders may lend to one borrower are often discussed. Those we know of are industry codes, not RBI rules, and we did not verify them.