Microfinance is the one lending business in India where the regulator has written rules about the borrower's household budget. That tells you what the supervision is really about — not your balance sheet, but whether the borrower can actually afford to repay.
Four rules carry most of the risk. Each one can be checked from your own data, and each one is checked.
Rule 1: the qualifying asset threshold — and it has changed
An NBFC-MFI must maintain at least 60% of its total assets, net of intangible assets, as qualifying assets on an ongoing basis. This threshold was reduced from 75% in 2025, giving NBFC-MFIs materially more room to diversify.
Two things matter here that are easy to miss:
- "On an ongoing basis" means exactly that. It is not a year-end test. A breach at any point is a breach.
- A breach across four consecutive quarters obliges you to file a remediation plan with the RBI. That is a formal supervisory event, not an internal matter.
The relaxation to 60% is genuinely useful — but it has also produced the newest category of risk, which is NBFC-MFIs moving quickly into secured and non-microfinance lending and slipping below the limit because nobody checks it every month.
Build the monitor before the growth. If qualifying assets are not a number your management committee sees every month, alongside collections and disbursement, you are running the diversification blind.
Rule 2: the household, not the borrower
A microfinance loan is a collateral-free loan to a household with annual income up to ₹3 lakh. The unit is the household — defined as husband, wife and their unmarried children — not the individual who signs.
Where NBFC-MFIs fail this, it is almost never fabrication. It is method. Household income is assessed by a field officer under time pressure, using a form that invites a round number, with no second source. When a supervisor re-interviews a sample of borrowers and the recorded income does not survive the conversation, the finding is not about one file — it is about your assessment process.
What holds up: a documented income assessment methodology approved by the board, applied consistently, with the basis recorded rather than just the conclusion, and a self-declaration corroborated by something.
Rule 3: the 50% outflow cap
In practice, this is the hardest rule to follow. Total monthly repayment obligations of a household across all its loans — yours and everyone else's — must not exceed 50% of monthly household income.
Three consequences follow:
- You must know the household's other borrowings. Credit bureau enquiry across all four bureaus is the only defensible way, and it must be at the household level, not just the applicant.
- The cap is on all obligations, not just microfinance. A gold loan, a two-wheeler EMI, a bank loan — all of it counts.
- Your system must enforce it, not report it. A limit that can be overridden by a branch manager without recorded approval is not a limit.
This is also where sector stress shows up first. When multiple lenders each individually respect the cap on stale bureau data, the household ends up above it collectively. Refreshing bureau data at disbursal rather than at application is a small operational change that closes most of this gap.
Rule 4: pricing you can defend, and a KFS the borrower understands
There is no interest rate ceiling. There is something harder: a requirement that your rate is not usurious, that it follows a board-approved policy with a documented rationale, and that the same rate structure applies consistently to similar borrowers.
Alongside it:
- A Key Facts Statement in simple language the borrower understands, disclosing the all-in cost, before the loan is taken.
- No charge outside the KFS may be recovered.
- No prepayment penalty on a microfinance loan.
- Disclosure of the minimum, maximum and average rate in your annual report and at your branches.
Freedom to price comes with the obligation to explain the price. An NBFC-MFI that cannot show how it arrived at its rate is more exposed than one charging a higher rate with a documented, board-approved basis.
The fifth thing, which is not a rule
Recovery conduct. The Directions require a board-approved code of conduct for recovery, prohibit recovery at the borrower's residence except in specified circumstances, restrict the hours, and require that recovery from a distressed borrower is handled at a designated place.
Where recovery is done through agents, the conduct is still yours. The complaints that reach an Ombudsman in this sector are overwhelmingly about collection behaviour, and they are the fastest route from a quiet NBFC-MFI to a supervised one.
What to check this quarter
- Qualifying assets, month by month for eight quarters. Not the year-end figure. Look for the dip.
- A sample of fifty files against the 50% cap, recomputed from bureau data as at the disbursal date.
- Income assessment on the same fifty — is the basis recorded, or only the number?
- Your KFS against what is actually charged, including any fee collected by a partner or agent.
- Every recovery complaint in the last year, and whether each closure addressed the conduct or only the account.
None of this requires a regulator to be on the way. All of it is easier to fix when one is not.