What is the regulatory requirement regarding the 'Pre-payment Penalty' for microfinance loans according to RBI guidelines?

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Economics · Economy

Verified Solution4 OptionsUpdated: October 2026👁️1 View

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Pre-payment penalties are strictly prohibited for all microfinance loans provided by any regulated entity.

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Answer 1

A penalty of 1 percent is mandatory to compensate the MFI for loss of interest income.

Answer 2

Penalty can only be charged if the borrower is switching to a competitor MFI.

Answer 3

Pre-payment penalties are strictly prohibited for all microfinance loans provided by any regulated entity.

Answer 4

MFIs are allowed to charge a 2 percent penalty on the outstanding principal if the loan is closed within 6 months.

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