The Micro Finance Industry Network (MFIN), a Reserve Bank of India (RBI)-recognised self-regulatory body for the microfinance sector, has introduced updated underwriting guidelines for its members as the sector continues to witness stress due to borrower overleveraging and other macro challenges.
“The extant RBI regulations mandate an accurate estimation of the outflows on account of repayment of monthly loan obligations of the borrower household. The regulations also stipulate that monthly repayment obligations should not exceed 50 per cent of the monthly household income,” it said.
EMI value
Lenders make use of the credit reports obtained from the credit bureaus for the purpose of estimating the outflows on account of loan repayments. However, an accurate estimation of these outflows faces two major hurdles. These include EMI value for a particular loan not being mentioned in the credit report.
This mostly happens in the case of consumer and retail loans since submission of EMI data by the lenders to the credit bureaus is not mandatory for such loans.
Secondly, in case of loans which are not repaid monthly but are paid in one ‘bullet repayment’ at the end of the tenure, there is no ‘monthly outflow’ value in the report.
“As such, there are varying practices followed by lenders to overcome these issues. To bring about a uniformity in the treatment of such cases and to help the lenders be compliant with the RBI regulations, MFIN has issued guidelines to assist member Regulated Entities in having a robust underwriting policy dealing with cases of bullet repayments/missing EMIs,” the industry body said, without specifying in detail the new steps to ensure uniformity. ENDS