The regulatory intervention by the RBI has not gone beyond providing a basic legal framework for the functioning of MFIs
............“The government and the RBI have wilfully promoted a policy direction in the last 10-15 years whereby private players are allowed to engage in micro-credit. In 1999, the RBI, in its Monetary and Credit Policy, deregulated all interest rates on micro-credit. The absence of regulation and the freedom given to private players allowed MFIs to charge exorbitant rates of interest. The present RBI guidelines still allows an interest rate cap of 26 per cent, while you can get a home loan or a car loan at 9 per cent or 11 per cent.”...................
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