Microfinance software: RBI rules and group lending
The Reserve Bank’s microfinance rules, the group lending and field collection workflows they sit inside, and what software has to get right, from the team building ERPStack.
Last updated 21 October 2026
What does microfinance software need to do in India?
Microfinance software has to apply the Reserve Bank’s microfinance rules: lend collateral-free only to households earning up to ₹3 lakh a year, assess household income, keep total loan repayments within 50% of monthly household income, charge no prepayment penalty, and report to credit bureaus. It also has to run group lending, centre meetings and field collections.
Where ERPStack is today
ERPStack Lending is planned and in development. Nothing on this page is available to use yet, and no part of it has been reviewed or approved by the Reserve Bank.
Sign upWhat are RBI’s rules for microfinance loans?
The Reserve Bank set out its microfinance framework on 14 March 2022 for banks and NBFCs (RBI Master Direction). For NBFCs, the rules now sit in Chapter V of the Credit Facilities Directions, 2025 and the conduct chapter of the Responsible Business Conduct Directions, 2025.
| Rule | What it requires | Source |
|---|---|---|
| Definition | Collateral-free loan to a household with annual income up to ₹3,00,000; no lien on a deposit account and no hypothecation | Credit Facilities, para 51 |
| Household income assessment | Board-approved method; income of all earning members from all sources, assessed over at least one year and checked against expenses and assets | Credit Facilities, para 52 |
| Repayment cap | All monthly loan repayments of the household, including the new loan, capped at 50% of monthly household income | Credit Facilities, paras 55–57 |
| Repayment periodicity | Board-approved policy giving borrowers flexibility on how often they repay | Credit Facilities, para 59 |
| Pricing | Board-approved pricing policy with an interest rate model, its components and a ceiling on rate and charges; rates must not be usurious | Credit Facilities, paras 60–61 |
| Prepayment | No prepayment charge; any late-payment charge applies to the overdue amount, not the whole loan | RBC Directions, para 81 |
| Disclosure | KFS, a loan card with a simplified pricing factsheet, and minimum, maximum and average rates displayed in offices and online | RBC Directions, paras 78–82 |
The repayment cap is where software earns its keep. It needs the household’s full debt, which comes from the credit bureaus, the borrower’s declaration and bank statements, and it must block new loans to any household already above 50%, while letting existing loans run to maturity (Credit Facilities Directions).
How does microfinance software handle JLG and SHG group lending?
Most microfinance is lent to groups. A joint liability group (JLG) is a small group of borrowers who each take an individual loan and stand behind one another; a self-help group (SHG) borrows as a group and lends on to its members. Several groups usually meet together as a centre on a fixed day.
| Workflow | What the software must do |
|---|---|
| Group formation | Record members, households, KYC and group roles; stop one household joining twice |
| Household assessment | Capture household profile, income and expenses for each member against the board-approved method |
| Group sanction | Approve member loans inside a group, each checked against the 50% household cap |
| Centre meetings | Schedule meetings by centre, print or show the due list and record attendance |
| Repayment schedules | Weekly, fortnightly or monthly schedules, set per borrower where the policy allows |
| Group view | Show each member’s position and the group’s overall repayment record for the field officer |
Every member’s household income has to reach the credit information companies, and if the assessed figure differs from what was reported earlier, the lender has to ask the borrower why before updating it (Credit Facilities, para 54).
What must a microfinance field collection app do?
Collections in microfinance happen in the field, often in cash, so the mobile app and the rules on recovery conduct have to fit together (RBC Directions).
- Place of collection. Recovery happens at a place agreed by the borrower and lender. Field staff may collect at the borrower’s home or work only if the borrower misses the agreed place on two or more successive occasions.
- Calling hours. Calling a microfinance borrower before 9 a.m. or after 6 p.m. counts as a harsh recovery practice, as do persistent calls, abusive language and contacting relatives or co-workers.
- Receipts. Each collection should produce a receipt on the spot and post to the loan the same day, so the borrower’s account and the cash in hand always agree.
- Offline working. Centres are often out of network range, so the app has to record collections offline and sync later without duplicates.
- Stress flags. Lenders need a way to identify borrowers facing repayment difficulty and to engage with them; the app is where field staff first see it.
Credit information follows the same reporting cycle as other NBFC loans, using a separate microfinance reporting format (CIR Directions). From 1 July 2026 that means data as on the 9th, 16th, 23rd and last day of each month (CIR Amendment Directions). For an NBFC-MFI, a microfinance loan becomes an NPA when payment is overdue for more than 90 days (NBFC-MFI Directions).
What is ERPStack Lending planning for microfinance?
ERPStack is an ERP for Indian small and mid-sized businesses that Perimattic is building. ERPStack Lending is a planned app line for lenders, with microfinance among the products it is being designed around. The plan:
- Household income assessment captured against the lender’s own board-approved method.
- A 50% repayment cap check on every new loan, using bureau and declared debt.
- Groups, centres and meeting schedules, with flexible repayment frequency.
- A field collection app that works offline and posts receipts to the loan.
- Microfinance-format credit information files on the reporting cycle.
Status: ERPStack Lending is planned and in development; none of this is available to use yet, and it carries no RBI approval or certification. Sign up to tell us how your field teams work.
This page is general guidance, not legal or regulatory advice. RBI Directions were checked on 22 October 2026.
More on lending software
Microfinance software, answered
What is the income limit for a microfinance loan?
A microfinance loan is a collateral-free loan to a household with annual income up to ₹3,00,000. The household means husband, wife and their unmarried children. Any collateral-free loan to such a household counts as microfinance, whatever its purpose and whether it is processed physically or digitally.
How is the 50% repayment cap calculated?
Add the monthly repayments, principal and interest, on every loan the household already has, collateralised or not, plus the loan being considered. That total cannot exceed 50% of monthly household income. Expected income from the activity the new loan finances is left out, and households already above the cap get no new loans until they are back within it.
What is the difference between an NBFC-MFI and other microfinance lenders?
An NBFC-MFI is a non-deposit-taking NBFC with at least 60% of its total assets, net of intangibles, in microfinance loans on an ongoing basis. Other regulated lenders can also make microfinance loans; the March 2022 framework applied to banks and NBFCs alike, so the household income and repayment rules are not limited to NBFC-MFIs.
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