To ensure that members of joint liability groups don’t come to grief, the Microfinance Institutions Network has directed its constituents to restrict the loan size to such groups to ₹60,000.

Though the Reserve Bank of India (RBI) doubled the loan ceiling to ₹1 lakh in April, MFIN wants its 45 NBFC-MFI constituents to be conservative in lending to joint liability groups (JLGs).

This decision has been taken after assessment of the credit absorption capacity of the groups and ability of members (with varying income generation capacity) to repay loans.

Further, pressure exerted by members on those who default and its fallout, with some defaulters going to the extent of ending their lives, prompted MFIN to issue the directive on the self-imposed loan ceiling.

MFIN is the self-regulatory organisation (SRO) of non-banking finance companies that operate exclusively as microfinance institutions (NBFC-MFIs).

For NBFC-MFIs, a JLG is an informal group comprising 5-10 individuals coming together for the purpose of getting a bank loan through the group mechanism against mutual guarantee.

Joint undertaking The members offer joint undertaking to the bank to enable them to get loans. JLG members are expected to provide support to each other in carrying out occupational and social activities.

According to Ratna D Vishwanathan, CEO, MFIN, although the RBI raised the loan ceiling for a JLG to ₹1 lakh, MFIN realised that it cannot absorb this amount.

“So, we have, on our own, agreed to have a cut-off of ₹60,000 (for a JLG). So, joint liability will not exceed ₹60,000….So, this is what you mean by (industry-wide) self-regulation.

“Last week we issued a board directive to MFIs. This was mutually agreed at our Annual General Meeting…There was a lot of debate and discussions,” she said.

Pointing out that income generation capacity of JLG members is not the same, the MFIN CEO explained that this is the reason why a cut-off figure has been arrived at where there is a comfort level where the group can still give a member the guarantee. Otherwise, it would be very unfair.

“We have seen so many cases where the group exerts pressure on the person who can’t pay….Imagine if eight women come to your house, start taking out your things, start abusing you, and start making noise.

“The social impact of that is huge and it leads to demoralisation, sometimes to the extent that people take their own lives. That is not a good thing. One of the main focus areas for us as an SRO is client protection,” said Ratna.

According to the MFIN chief, at the end of the day MFIN constituents want people to healthily absorb capital and do business.

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