Micro-finance Indebtedness Should Be Limited to Rs2 Lakh per Borrower with Maximum 4 Lenders: MFIN
Moneylife Digital Team 09 July 2024
Microfinance Industry Network (MFIN), an industry association and self-regulatory organisation (SRO) for micro-finance, says micro-credit indebtedness for every borrower should be limited to Rs2 lakh with just a maximum of four lenders providing the loan. The decision will help reduce indebtedness among micro-finance borrowers, it added.
In a statement, MFIN says that, with nearly 80% of micro-loans having a tenure of 18 months or more, a limit of Rs2 lakh will effectively mean a lesser repayment obligation for a borrower. "MFIN takes proactive additional steps for client protection and responsible finance. This is in addition to Reserve Bank of India (RBI) regulations."
"Assessing a borrower's household income and loan repayment obligations is an important part of underwriting. This ensures that a debtor is not overstretched and is to honour loan repayments on time," it added.
According to MFIN , the indebtedness is the responsibility of microfinance lenders. "We have taken steps to facilitate responsible lending and promote a steady and calibrated sector growth."
Currently, 229 micro-finance institutions (MFIs) serve small borrowers with an annual income of less than Rs3 lakh. 
According to MFIN data, as of 31 March 2024, the micro-finance industry has a loan portfolio worth Rs4.33 lakh crore. MFIs have 149mn (million) active loan accounts with 78mn borrowers.
Almost 99% of microfinance loans in India are provided to women from low-income households.
Almost 98% of loans are provided through the joint liability group (JLG) lending model, where a group of customers, usually five to ten, individually come under JLG to take loans and agree to support and repay the loans if customers in the group face difficulty making repayments. This group model brings efficiencies in operational costs and leverages social collateral towards underwriting and against the risks of defaults.
Microfinance loans are collateral-free and are given primarily for income-generating activities but are also granted for household expenses like education, health and housing.
5 days ago
If the lenders do not share the data of the borrower with other MF lenders, the borrower can fleece multiple MF lenders.
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