MFIN Should Limit Indebtedness Up To Rs 2 Lakh Per Borrower: Self-Regulatory Organisation

The micro-credit indebtedness of each borrower should be capped at Rs 2 lakh, while the number of lenders to the debtor should also be capped at a maximum of four, the Microfinance Industry Network (MFIN), an industry self-regulatory body said on Tuesday.

With nearly 80 percent of micro-loans having a tenure of 18 months or more, the Rs 2 lakh cap will effectively mean lesser repayment obligations for the borrower, MFIN said in a statement.

The industry body also said that assessing a borrower's household income and loan repayment obligations is an important part of underwriting. This ensures that the debtor is "not overburdened and is committed to paying the loan installments on time."

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MFIN also urged credit information companies to improve the quality of data available for underwriting.

The industry body said that indebtedness is the responsibility of micro-finance lenders, adding that it has taken steps to facilitate responsible lending and promote steady growth and standardization of the sector.

The microfinance sector serves borrowers whose annual income is less than Rs 3,000. Supported by favorable regulations, the sector now has a total loan portfolio of Rs 4.33 lakh crore covering nearly Rs 7.8 lakh borrowers, the industry body said.

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(With Agencies Input)