The overall microfinance portfolio of lenders who are part of Sa-Dhan (the Self-Regulatory Organization/ SRO for Microfinance Institutions) has dropped from ₹4.43 lakh crore in March 2024 to ₹4.04 lakh crore in October 2024 due to a reduction in incremental disbursements and unwinding of borrower leverage.

This has come about after Sa-Dhan, in July 2024, issued ‘Seven Sankalps’, which gave some additional guidelines in the form of guardrails to its member institutions, the SRO said in a statement.

Sa-Dhan assessed that the drop in the overall microfinance portfolio is the result of unwinding of borrower leverage by almost 10 per cent. Further, incremental quarterly disbursements have reduced by 29 per cent year-on-year (yoy).

“The unwinding of excessive leverage has already started. There is also a significant reduction in the Rs 2 lakh plus exposure to microfinance households, down from 2.5 per cent in March to 0.6 per cent in September 2024.

“In light of these, the Board felt that the need of the hour was to ensure stricter adherence to these Sankalps already issued by Sa-Dhan,” per the statement.

Sa-Dhan guidelines

The seven Sankalps include not lending to households with microfinance exposure beyond ₹2 lakhs while keeping the RBI-prescribed 50 per cent FOIR (fixed obligations to income ratio) norms as the priority: comprehensive credit bureau checks at the Household level, transparent pricing with individual components well defined.

The Sankalps also prescribed capping the processing fee at 1.5 per cent (excluding applicable taxes), not lending to NPA (non-performing accounts) with an amount greater than ₹3,000, proper checks on loan utilisation, a mandatory employee bureau check for staff hiring, and insistence on obtaining and providing relieving letters.

“The microfinance sector has moderated its growth and shown much more discipline in the last six months. The guidelines issued by Sa-Dhan in July seem to be working well. The objective now is to ensure that all the members adhere to the guidelines in all sincerity so that the sector will be back to its normal,” said Paul Thomas, MD &CEO of ESAF Bank and Chair of Sa-Dhan.

Jiji Mammen, CEO of Sa-Dhan, said the SRO’s members have taken several corrective steps recently, as evidenced by the credit bureau’s data. Sa-Dhan’s verification in the field also corroborates this.

“The Board has also decided that Sa-Dhan should work out a household income assessment model to be adopted by the member institutions,” he said.

Further, Sa-Dhan has already developed an interest rate calculation template, which will be issued to the members shortly.

SA-Dhan has 150 lending institutions as members, of which 67 are non-banking finance companies (NBFC)-microfinance institutions (MFIs), five small finance banks, and 30 NBFCs. In addition, other MFIs from the ‘Not for Profit’ category form part of its member base.

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