Microfinance sector tightens lending norms to address asset quality stress
Microfinance Institutions Network (MFIN), one of the two self-regulatory organisations for the sector, has decided to implement a stricter set of guardrails for its members to help them overcome the severe asset quality stress that they are subjected to at present.
The new norms, when implemented, are expected to squeeze the quantum of credit delivery to customers at the bottom of the income pyramid and reduce their over-indebtedness, which has been at the heart of the present sectoral crisis.
MFIN has requested its members to stop lending to delinquent customers who have overdue loans for more than 60 days with an outstanding amount more than Rs 3000. The existing industry norm was not lending to a client with overdue for more than 90 days with more than Rs 3000. If a loan is not serviced for 90 days, it is classified as non-performing.
MFIN has said that no borrower should get a loan from more than three lenders, instead of the previous four lenders norm. It has also tightened the total indebtedness criteria for borrowers.
In July, it had capped the total microfinance loans to a single borrower to Rs 2 lakh at any point of time, to reduce repayment burden on them. Henceforth, MFIN suggested that the outstanding Rs 2 lakh cap will include both microfinance loans and unsecured retail loans.
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