Earlier RBI had regulated for a ceiling cap of 26% maximum to be charged as interest on loans by Microfinance Companies. However, this stipulation was removed in 2014.
And the average of the base rates of 5-largest commercial banks is advised by RBI on the last working day of the previous quarter, which determines interest rates for the ensuing quarter.
Therefore, the charges vary because they are now linked to the actual cost of funds to the lender.
And the processing fees must not exceed 1% of the gross loan amount.