A defaulter or overleveraged borrower might find it difficult to get credit from microfinance institutions (MFIs).
With almost all NBFC-MFIs sharing nearly 100 per cent of the borrowers’ credit history with credit bureaus, borrowers will find it difficult to approach them for loans.
Following the crisis in the MFI industry in Andhra Pradesh, the Reserve Bank of India had, in September last year, asked all NBFC-MFIs to upload the data of their clients with any of the four credit bureaus including Cibil, Experian, Equifax and High Mark.
According to Alok Prasad, Chief Executive Officer, Microfinance Institutions Network (MFIN), close to 75 million client records have been uploaded with the two credit bureaus — Equifax and High Mark Credit Information Services Ltd.
“The first step is where the MFIs provide a data of their clients to credit bureaus; the next step is where they can take reports on specific clients to get their borrowing and repayment record. Both these steps are being followed by MFIs,” Prasad told Business Line .
There are close to 25 million borrowers in the industry.
“The higher number of records with credit bureaus is primarily because a borrower might have taken more than one loan. Some of them might not be taking credit at present but records still exist,” said Chandra Shekhar Ghosh, Founder and Chairman of Bandhan.
RBI, in its guidelines to NBFC-MFIs, had instructed that a self-help group cannot borrow from more than two MFIs and the total borrowing should not exceed Rs 50,000.
“Multiple lending and over leveraging were the two key issues that came to light following the crisis. This has been largely put in check as our lending decisions are based on the credit report,” said Shubhankar Sengupta, Chief Executive Officer, Arohan Financial Services.
Slow disbursements
Though MFIs are currently uploading monthly credit record with the bureaus, they will soon start feeding fortnightly data as well to make the system more effective, Prasad said.
The new system has, however, delayed the disbursement process a bit.
“Earlier, disbursements were made within a week but now it takes about two weeks to consult the records and take a decision,” Ghosh said.