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Home Credit Bureau India MFIs using information from credit bureaus to curb defaults

MFIs using information from credit bureaus to curb defaults

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It wouldn’t be wrong to classify past couple of years as the worst possible years for the microfinance industry (MFI).  While addressing an event, Deputy Governor of Reserve Bank of India (RBI), K C Chakrabarty said, MFIs failed to assess the credit needs and repayment capacity of borrowers. This statement truly brought forward a new dimension to the crisis and failure of microfinance industry.
 
MFIs have now taken progressive steps to curb loan default and are now increasingly routing loan applications through credit bureaus. And, a number of these applications are being rejected on the grounds of defaults/higher outstanding and multiple loans.
 
Microfinance Institutions Network (MFIN) members, who account for over 90 per cent micro-lending in the country, are regularly uploading data to credit bureaus — High Mark and Equifax.
 
“Use of credit bureau benefits the poor as well as MFIs. The general rate of rejection of loan applications is 8-14 per cent,” Mr S. Dilli Raj, Chief Financial Officer, SKS Microfinance Ltd, said.
 
At present, the credit bureau records are being consulted to take a call on loan applications of 30 million MFI clients from across the country.
 
The loan proposals are being turned down if the outstanding loan from any applicant is over Rs 50,000. “New loans are also not being extended if the applicant has more than two existing loans,” Mr Dilli Raj said.

 

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