A CHANGE IN BEHAVIOR OF BANKING SECTOR FOR MICRO FINANCE IN MSME

The setting of interest rates in the field of microfinance (MF) has been hotly debated for years. On the one hand, it is claimed that high interest rates are justified because of the elevated operating and processing costs of serving very small loans without collateral. Today India has just slowdown in unemployment. Through this research paper we have just disclosed the India banking structure change of Micro finance. In 2011 India launched a cap on MF interest rates of 26% for loans up to 50,000 rupees (US$1,124) and at that rate stagnation and reduced borrowing followed. To offset this, in April 2014, the Reserve Bank of India introduced a more flexible rate: cost of funds (at market rates) plus 10% for existing MFIs and cost of funds plus 12% for new MFIs. A recent study by CGAP (Consultative Group to Assist the Poor) analyzed interest rates in over 866 MFIs between 2004 and 2011, finding that most African countries have instituted interest rate caps to protect consumers, in some cases due to political and cultural pressures.