Impact of the Reserve Bank of India’s 2022 Microfinance Regulatory Framework on NBFC-MFIs

Microfinance sector has been instrumental in promoting financial inclusion in India especially among the low-income households. In March 2022 the Reserves Bank of India announced a new regulatory structure to microfinance loans, to be adopted on April 1, 2022, to replace previously used qualifying asset norms and provide standardized borrower protection policies in regulated entities. The reform was supposed to improve the protection of consumers, transparency, and responsible lending practices with more pricing flexibility. The work is an empirical investigation of the effect of the 2022 regulatory regime on the performance of Non-Banking Financial Company-Microfinance Institutions (NBFC-MFIs) based on secondary panel data between 2016-2024. Key performance indicators are analyzed with references to portfolio growth, the quality of assets (PAR/NPA ratio), net interest margin, and the amount of the return on assets. The paper adds to the body of literature on the financial regulation and sustainability of microfinance by offering empirical data concerning the trade-offs between institutional performance and borrower protection. The findings have significant policy implications to regulators, industry players and financial inclusion programs of emerging economies.