The RBI on Friday changed regulatory norms for microfinance companies with liberal norms for those operating in the North Eastern states. 

"The bank has been receiving representations from NBFCs that are primarily intomicrofinancing, conveying difficulties in complying with the framework," the RBI said. 

"In light of this, it has been decided to make certain modifications in the directions issued on December 02, 2011." The central bank has done away with the 26% cap on lending rates due to the dynamic nature of the cost of funds for microfinance companies, but has said that margins will be capped. The maximum variance permitted for individual loans between the minimum and maximum interest rate cannot exceed 4%, it said. It cut the minimum amount of money to be lent to income generating assets to 70%, from 75% since most of the clientele of microfinance companies are at subsistence level. 

A person could be a member of only one group, either a self-help group (SHG) or a joint liability group (JLG). A SHG or a JLG can borrow from a maximum of two micro-lenders. 

New entities looking to start as NBFC MFI need a minimum fund of Rs 5 crore while existing ones should have net-owned funds of Rs 3 crore by March 31, 2013, and Rs 5 crore by March 31, 2014. In case of failure to comply with the norms, they will have to ensure that lending to the microfinance sector, including individuals and self-help groups qualifying for loans from MFIs, be restricted to 10% of the total assets. 

NBFCs in the north-eastern region will have to maintain net-owned funds of Rs 1 crore by March 31, 2013, and Rs 2 crore by March 31, 2014. 

NBFC-MFIs are required to maintain not less than 85% of their net assets as qualifying assets. "NBFC-MFIs were also required to ensure that the aggregate amount of loans given for income generation is not less than 75% of the total loans extended," RBI said in the circular. 

RBI has also decided that income generation activities should constitute at least 70% of the total loans of the MFI so that the remaining 30% can be allocated for other purposes such as housing repairs, education, medical and other emergencies. (Times of India)