Microfinance self-regulator hopes tensions will stabilize by January

MUMBAI: Microfinance Institutions Network (MFIN), the self-regulatory organization for the sector, expects the current bad loan stress faced by microlenders to stabilize by January next year with the new rules.

On Monday, MFIN tightened its microcredit guidelines, after the criteria were first unveiled in July. The sector’s self-regulatory organization (SRO) has made significant changes, including reducing the number of lenders to a borrower from 4 to 3 and limiting the maximum indebtedness of a borrower. 2 lakh, which includes both micro and unsecured retail loans.

MFIN Chief Executive Officer Alok Mishra said the new guidelines are prudent and will reduce crimes in the system. peppermint in an interview.

“The heightening of tensions is a multidimensional factor, lending is one part of it. There may also be other structural factors in the economy. Today news has come that there has been a bumper Kharif crop. Rabi sowing is in full swing. I hope things will stabilize by January.”

Under the new guidelines, MFIN has also requested its members to stop lending to delinquent customers who have outstanding loans for more than 60 days. 3,000. At present, lenders are not allowed to extend loans to customers with overdues of more than 90 days. If a loan is not repaid for 90 days, it is classified as non-performing. MFIN has also proposed to add PAN to 50% of borrowers by March 2025, which is expected to strengthen the KYC process. The SRO clarified that apart from the processing fee and credit life insurance, no other charges can be deducted from the sanctioned loan amount.

impact on development

Citi in its research report said the new norms will adversely impact growth as 7-8% of the total assets under management are exposed to borrowers from 4 lender consortiums.

However, Mishra ruled out any other impact on credit growth or increase in stress due to these guidelines.

“Even earlier, MFIN had three lender criteria as part of the Code of Responsible Lending. Considering the argument that if someone has more lenders/loans then he is more likely to be a delinquent, in the present situation, we have brought back the old criteria. Since defaults remained high in September, we think tightening underwriting will bring back credit discipline,” Mishra said.

“We do not think that reducing the number of lenders will lead to a reduction in funding. This will only rationalize liquidity and reduce the number of customers with more lenders than prescribed to come within the norms for fresh funding. Lenders can also deepen the white spots to cover areas of low penetration,” he said, referring to the gap between the products and services offered by the lender and the needs of customers.

The MFI sector has seen a sharp deterioration in asset quality in the first half of the financial year due to a combination of factors such as heat, slowdown in disbursements and rumors of loan waivers ahead of the general elections. According to the quarterly report called Micrometer released by MFIN, the number of new loans distributed by lenders declined by 7.3% year on year in the first quarter. Portfolio quality (PAR 30 to 180 days lagged) also declined to 2.69% as on June 30, 2024, from 1.80% during the same period a year ago. Portfolio at Risk (PAR) is the percentage of the MFI’s loan portfolio that is overdue and at risk of default.

last month, reserve Bank of India Sanctioned two micro lenders – Ashirwad Micro Finance Ltd and Aarohan Financial Services Ltd – for not following regulatory guidelines on estimating household income and considering existing or proposed monthly repayment obligations in their microfinance loans and charging excessive rates.

Interestingly, Manoj Nambiar, managing director of Aarohan Financial Services, was appointed chairman of MFIN only a few months ago.