MICROCAPITAL BRIEF: Microfinance Institutions Network (MFIN) Reports Increasing Delinquency in India; L&T Finance, Bharat, Utkarsh Rejecting Up to 30% of Loan Applications Due to Multiple Borrowing

The Microfinance Institutions Network (MFIN), a self-regulating body representing 48 microfinance institutions (MFIs) in India, reports that 2.83 percent of non-group microloans in the country have at least one payment overdue by more than 180 days as of March 2018, up from 0.23 percent in March 2017. India’s Larsen & Toubro (L&T) Finance Limited reportedly has been rejecting 30 percent of individual loan applications due to multiple borrowing. Two other lenders in the country, Bharat Financial Inclusion Limited and Utkarsh Small Finance Bank, report rejecting 22 percent and 20 percent of loan applications, respectively, for the same reason.

The Reserve Bank of India (RBI) does not allow MFIs that are organized as non-banking finance companies (NBFCs) or NGOs to lend to people who already have two outstanding loans from such institutions. However, former MFIN CEO Alok Prasad expressed concern that, “the regulation governing microlending only applies to MFIs. They do not apply to banks, leaving a scope of regulatory arbitrage. Therefore, it is possible for a customer to borrow from two MFIs and [also from one or more] banks.” Although MFIs disbursed most microloans in India five years ago, traditional banks and “small finance banks” together have most of the market share as of 2018. The regulations on multiple lending do not apply to either of these two types of institutions.

Crif High Mark, a credit bureau owned by Italy-based Crif, reports that as of March 2018, the Indian states with the highest percentage of borrowers in contracts with four or more lenders are Tamil Nadu, Uttar Pradesh and West Bengal, which have rates of 3 percent, 1.05 percent and 0.67 percent, respectively.

Established in 2009 and based in India, MFIN is a self-governing organization of 48 microlenders whose mission is to “work towards the robust development of the microfinance sector by promoting responsible lending, client protection, good governance and a supportive regulatory environment.” As of December 2017, MFIN’s members operate 9,102 branches and report an aggregate gross loan portfolio of INR 468 billion (USD 7.3 billion). During 2017, MFIN’s member institutions disbursed INR 503 billion (USD 7.9 billion) in new loans.

Established in 2007 and based in India, Crif High Mark is a credit bureau that provides credit information, data collection technology, risk management and banking software solutions to customers in the banking, insurance and telecommunications sectors. Its parent organization, Crif, has subsidiaries that also offers business process outsourcing, marketing research, credit management, financial consulting and business training services. As of June 2018, Crif’s clients comprise 6,300 financial institutions, 55,000 enterprises and 310,000 individual customers in 30 countries.

By Nicholas Galimberti, Research Associate

Sources and Additional Resources

Business Standard article
https://www.business-standard.com/article/markets/mfis-turn-aggressive-lenders-signs-of-overborrowing-emerge-in-microlending-118062600888_1.html

MFIN background
http://mfinindia.org/about-us/#who_we_are

MFIN annual report
http://mfinindia.org/wp-content/uploads/2016/10/MFIN-Annual-Report-Final-low-res.pdf

Crif High Mark background
https://www.crifhighmark.com/about-us/about-crif-high-mark/

Crif S.p.A background
https://www.crif.com/about-us/

MicroCapital Brief; May 3, 2017; India’s Microfinance Institutions Network (MFIN) Launches Financial Literacy App in 5 Languages
https://www.microcapital.org/microcapital-brief-indias-microfinance-institutions-network-mfin-launches-financial-literacy-app-5-languages/

Do you know that MicroCapital publishes the MicroCapital Monitor newspaper each month? Find out more at http://www.microcapital.org/products-page/.