MFIN to further tighten norms for micro-loans from January 2025

Reduces MFIs per borrower to three from four

As a step to further strengthen responsible lending, Microfinance Industry Network (MFIN) has prescribed another set of strict norms, including reducing the number of micro-lenders per client from the existing four to three. The new measures will come into effect from January 1, 2025, to provide sufficient time for regulated entities (REs) to implement changes.

 

“Continuing with its vigilant monitoring, data analysis, and feedback from members, it has been decided to introduce new norms,” MFIN, the self-regulatory organisation (SRO) for microfinance institutions (MFIs), said in a statement.

 

The total indebtedness or outstanding loan amount of a microfinance client has been capped at Rs 2 lakh, including both microfinance loans and unsecured retail loans.

 

In July 2024, MFIN had capped the number of microfinance lenders per client at four and the total microfinance loans to a client at Rs 2 lakh. In October, the industry body suggested taking into account loans with missing equated monthly instalments (EMIs) in credit bureau reports while underwriting microfinance loans.

 

MFIN’s monitoring, based on credit bureau data for August and September, showed good adherence to the guardrails issued in July, MFIN added.

 

Currently, MFIs do not lend to clients with overdue payments of more than 90 days and an outstanding amount exceeding Rs 3,000. Going forward, MFIs will not lend to delinquent clients, defined as those with overdue payments of more than 60 days and an outstanding amount exceeding Rs 3,000.

 

Interest rates will be closely reviewed by board members of regulated entities to ensure efficiency gains are passed on to clients. Additionally, apart from processing fees and credit life insurance, no other charges can be deducted from the sanctioned loan amount, MFIN said.

 

While a validated voter ID will continue to be the primary identity document for customers, the sector has set an ambitious target to seed permanent account numbers (PAN) for 50 per cent of borrower accounts by March 2025. This step is intended to strengthen the know-your-customer (KYC) process and improve underwriting, it added.

 

The microfinance sector currently caters to the financial needs of nearly 80 million low-income clients.