The Reserve Bank of India has pegged the applicable average base rate for Non-Banking Financial Company-Micro-Finance Institutions (NBFC-MFIs) at 10.09 per cent for them to arrive at interest rates to charge borrowers for the quarter beginning July 1.

In the quarter beginning April 1, too, the applicable average base rate for NBFC-MFIs was 10.09 per cent.

Interest rate charged In February, the RBI, in its circular relating to the pricing of credit, said the interest rates charged by an NBFC-MFI to its borrowers will be the lower of: the cost of funds plus margin; or the average base rate of the five largest commercial banks by assets multiplied by 2.75. The average of the base rates of the five largest commercial banks is advised by the Reserve Bank on the last working day of the previous quarter, and the same determines interest rates for the ensuing quarter.

An NBFC-MFI is defined as a non-deposit taking NBFC that fulfils conditions such as: minimum net owned funds of ₹5 crore (for NBFC-MFIs registered in the north eastern region of the country, the minimum NOF requirement is ₹2 crore); and not less than 85 per cent of its net assets are in the nature of “qualifying assets”.

“Qualifying asset” means a loan which satisfies criteria such as: loan disbursed by an NBFC-MFI to a borrower with a rural household annual income not exceeding ₹60,000 or urban and semi-urban household income not exceeding ₹1,20,000; loan amount does not exceed ₹35,000 in the first cycle and ₹50,000 in subsequent cycles; total indebtedness of the borrower does not exceed ₹ 50,000; tenure of the loan not to be less than 24 months for loan amount in excess of ₹15,000 with pre-payment without penalty; and loan to be extended without collateral.

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