Budget impact: Grameen Credit Score likely to restore credit discipline in microfinance, say experts
Microfinance leaders expect the budget proposal on the Grameen credit score framework to bring back lending discipline to the sector, where a declining repayment culture has exposed the entire industry to stress.
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Finance minister Nirmala Sitharaman announced that public sector banks would develop the credit score framework to serve the credit needs of self-help groups (SHG) and people in rural areas.
There is a strong overlap between SHG groups formed by public sector banks and joint liability groups, which is the backbone of the microfinance ecosystem followed by other lenders. Most of the members of these two separate models are common, people aware of the matter said.
«The proposal related to the Grameen credit score framework for SHGs is going to benefit the microfinance sector as a whole. Most of the borrowers under the joint liability group model and SHGs are common and therefore the credit score will bring in better credit discipline in microfinance and weed out fraudulent borrowers,” said Sa-Dhan executive director Jiji Mammen.
Sa-Dhan is a self-regulator for the industry.
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