Case Laws in Favour of NGOs Engaged in Microfinance

This issue of Standards and Norms discusses legal amendments that affect the definition of charitable purpose and thereby the income of NGOs.

Recent legal amendments in the definition of charitable purpose have implications on the income of charitable organisations. The paper states that it is important to know the impact of these recent amendments on microfinance NGOs whose activities are similar to commercial activities. These NGOs will have to prove that the interest they charge is reasonable, and therefore their activities are charitable.

If an NGO is engaged in microfinance as an incidental business activity, then it will be subjected to the recent amendments. The paper presents various case judgements that held that:

• Lending money to poor women for income generating activities was charitable and there was nothing on record to show that the interest charged was exorbitant;
• Borrowing money from banks and providing loans to poor women for their poverty alleviation was a charitable activity entitled for exemption;
• MFIs that exist solely to provide interest bearing loans may not be treated as charitable activities unless such institutions prove that these activities are towards relief of poor people at reasonable interest.