A Business Encyclopedia

Non-Banking Financial Company-Micro Finance Institution

Definition: The Non-Banking Financial Company: Micro Finance Institution (NBFC-MFI) is a non-deposit taking financial company that has minimum 85% of its assets in the nature of qualifying assets. The Qualifying Assets are those assets which have a substantial period of time to be ready for its intended use or sale.

As per RBI, for a non-banking financial company to be recognized as a microfinance institution must satisfy the following conditions:

  • Loan to be disbursed to the borrower with a rural household annual income shall not exceed Rs 1,00,000 and in the case of the urban and semi-urban household income not exceeding Rs 1,60,000.
  • The amount of a loan shall not exceed Rs 50,000 in the first cycle and Rs 1,00,000 in the subsequent cycles.
  • The tenure of the loan for the amount exceeding Rs 15,000 (with prepayment without penalty) must not be less than 24 months.
  • The total indebtedness of the borrower shall not exceed Rs 1,00,000.
  • The loan shall be disbursed without any collaterals.
  • An aggregate of total loans given for income generation shall not be less than 50% of the total loans given by the MFI.
  • The loan is repayable either weekly, fortnightly or monthly, depending on the choice of the borrower.

Thus, by fulfilling all the above conditions any non-banking finance company can perform the operations of a micro-finance institution.

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