Microfinance Institutions Network (MFIN), a small-denomination lender, on Monday announced a slew of changes to enable more responsible lending to underprivileged sections of society, following repeated clampdowns by the Reserve Bank of India (RBI) on the industry’s practices.
MFIN said in a statement that from January 1, members of the self-regulatory organisation will ensure that a microfinance institution customer’s exposure to a single MFI is limited to three MFIs as against four at present. Also, the total exposure of a borrower, including MFIs and retail loans considered unsecured, is limited to Rs 2 lakh.
Alok Mishra, the chief executive and director of the institute, hoped that the new measures would make the sector ‘more robust’. The Reserve Bank of India has expressed concern over several activities of MFIs in the last few months. This includes activities such as excessively high interest rates, giving multiple loans to a single borrower and even not depositing loan payments in the right accounts despite payment.
On October 21, RBI banned four units including Navi Finserv, DMI Finance, Arohan Financial Services and Ashirvad Micro Finance from approving and disbursing new loans due to improper activities. At the same time, many lenders are showing an increase in their NPA (non-performing asset) in the MFI segment.
According to MFIN guidelines, these financial institutions have also tightened the rules for lending to such customers of lenders who have come under the non-performing asset category. The guidelines state that no loan will be given to any defaulting customer who has not repaid dues of more than Rs 3,000 for more than 60 days.
Currently this time limit is 90 days. Self-regulatory organizations have also asked lenders not to charge any fee other than processing fee and life insurance for the loan. MFIN statement said that the directors of regulated units will closely monitor and review the interest rates to ensure that the efficiency benefits are passed on to the customers. According to the statement, “The aim of these measures is to facilitate responsible lending, prioritize customer protection and promote growth of the sector.”