MICROCAPITAL BRIEF: Code for Responsible Lending Assessment Tool to Incorporate Comprehensive Credit Reporting, Microfinance Institutions to Increase Frequency of Reports to Credit Bureaux

The Code for Responsible Lending (CRL), an initiative serving microlenders in India, recently began developing a new credit assessment tool for evaluating loan applications from low-income households. The tool is intended to help lenders “go beyond multiple/over lending limits and more systematically evaluate the low-income customer vis-a-vis cashflows, leverage and repayment history, including use of comprehensive credit information report[ing] (CCIR).’’ CCIR includes the evaluation of positive data from non-lenders, such as the successful payment of utility bills. As part of the CRL effort, participating microlenders will send data to credit information companies more often, gradually moving toward the target of daily submissions.

Observers have expressed concern that the COVID-19 pandemic will push customers to borrow more than usual, at the risk of becoming over-leveraged. CRL Steering Committee Chair Harun R Khan noted, “low-income households have very limited access to safety nets and non-credit financial products, and they excessively rely on credit to manage their financial lives.”

The goal of CRL is to create a voluntary framework for responsible lending. It was launched by three self-regulatory organizations in the country, the Finance Industry Development Council (FIDC), the Microfinance Institutions Network (MFIN) and Sa-Dhan. The members of MFIN and Sa-Dhan comprise 293 organizations involved in microfinance in India. The size of FIDC’s membership is not available.

By Nathan Kiplagat, Research Associate

Sources and Additional Resources

Business Line news release
https://www.thehindubusinessline.com/money-and-banking/micro-credit-lenders-in-the-process-of-developing-credit-assessment-tool/article32514706.ece

FIDC homepage
https://fidcindia.org

MFIN homepage
https://mfinindia.org

Sa-Dhan homepage
http://www.sa-dhan.net

Previous MicroCapital story on comprehensive credit reporting
https://www.microcapital.org/microcapital-brief-central-bank-of-solomon-islands-ifc-developing-comprehensive-credit-reporting-system-to-boost-financial-inclusion-of-individuals-msmes/

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