MFIN further tightens underwriting norms as sector stress rises

The Microfinance Industry Network (MFIN), a Reserve Bank of India (RBI) recognised self-regulatory organisation (SRO), has further tightened loan underwriting standards as stress in the micro loan sector rises, according to a statement.

The SRO has said that any micro loan customer can take loans from only three MFIs now as against four MFIs earlier. “The total indebtedness or outstanding loan amount of a microfinance client to be ₹2 lakh. However, it will include both microfinance loans and unsecured retail loans,” the statement said.

According to the existing industry norm, MFIs cannot lend to non-performing asset (NPA) borrower who has taken a loan of over ₹3,000 and not repaid dues for over 90 days. MFIN has now further tightened the guideline, saying borrowers whose repayment are overdue for over 60 days will not be extended a fresh loan.

The SRO body also said that MFI loans interest rates must be closely reviewed by the board of member organisations to ensure that efficiency gains are passed on to clients. Further, other than processing fee and credit life insurance, no other charges can be deducted from the sanctioned loan amount.

“In order to strengthen KYC process and improve underwriting, while validated voter ID will continue to be the primary ID, the sector has set an ambitious and aspirational target to seed PAN for 50 per cent of borrower accounts by March 2025,” the statement said.

Recently, India Ratings & Research said in a note that the growth for MFIs would flatten or there will be a decline in FY25 due to funding challenges for incremental growth, till the time asset quality challenges subsidise. ENDS