A Cap on the interest rates on Micro Finance Lending
The government has proposed to limit the micro finance industry lending rate to a maximum of an effective rate of 40% per annum, through the interim budget.
The micro finance sector plays an important role in the economy. It is observed that there are over 10,000 Finance Institutions (MFIs) in the country and has achieved a significant outreach to a large number of population of the country.
The government has identified the importance of promoting financing facilities in the micro finance sector to enhance income generation opportunities and improve living standards of the people in the country.However, it has been noted that there are significant fluctuations in the interest rates charged by the MFIs. This has hampered the development of this sector in one hand and restrained the entrepreneurial outlook which otherwise would have been positive in bringing the poorest segment in the society out of the poverty trap.With the increase of the lending rate, all micro finance lenders could now make a bigger impact by providing funds at a better rate of interest to upgrade their clientele.
