Microfinance Institutions Network (MFIN), an RBI-approved self-regulatory organisation for the NBFC-MFI industry, is in the process of setting up a steering committee to administer the recently framed common ‘Code for Responsible Lending (CRL)’ for the microfinance industry, said its Chief Executive Officer, Harsh Shrivastava.

The steering committee will level the playing field and get all microfinance players to conform to the same standards and ensure there is no overlending to the same borrower, Shrivastava told BusinessLine .

It will have about eight members and include representation not only from NBFC-MFIs but also other players such as commercial banks and small finance banks, he said.

The common ‘Code for Responsible Lending’, among other things, stipulates that not more than three lenders can offer loans to a single borrower, and the size of total lending has been capped at ₹1 lakh per borrower. MFIN has also recommended to NABARD, MUDRA and others to refrain from refinancing those who have not signed the CRL.

CRL is a voluntary effort with about 100 people having already signed — almost all NBFC-MFIs are on board; some private sector banks and 4 to 5 small finance banks have also signed. Each person who has signed will get an exception report — once in a quarter — from the credit bureau to highlight how many times the MFI has crossed the cap placed on the amount that could be provided to a borrower.

“Hopefully by December end we will have a steering committee. We are talking to a few high-profile people (such as retired RBI Executive Directors) to become the Chairman of the steering committee,” said Shrivastava.

MFIN will be the secretariat for the steering committee. It is estimated that a MFI borrower in India has on an average 1.65 loans. Test check done on the nearly 55 million MFI borrowers shows that nearly 3 per cent of them borrow from over three lenders, said Shrivastava. Nearly 3 per cent have loan outstanding more than ₹1 lakh.

So far, private banks that have signed include Kotak Mahindra Bank, Axis Bank, ICICI Bank, and IndusInd. “We are now looking to persuade other biggies such as Bandhan Bank to come on board,” he said.

MFIN is now insisting that an authorised signatory of the bank has to sign the CRL, which must also be placed in the board for record. This will commit the organisation to follow the code, he said. Until July this fiscal, the overall MFI industry book had grown by 36 per cent on a year-on-year basis. Shrivastava said there is rapid growth of microfinance, especially in Bihar, West Bengal, Orissa, and Assam.

Currently, the overall microfinance sector’s loan outstanding is about ₹2-lakh crore. Of this, the pure-play NBFC-MFIs account for just ₹61,000 crore. The rest is accounted for by commercial banks, small finance banks, and other categories. Shrivastava also said that the delinquency ratio of MFIN members has worsened marginally between the pre-demonetisation and post-demonetisation period.

comment COMMENT NOW