A lobby group of microlenders on Tuesday decided to disallow loans for new applicants who have previously defaulted on repaying any other lender.
The Microfinance Institutions Network (MFIN) made the decision at a closed-door meeting held on Tuesday in Mumbai.
“The MFIs mutually agreed that post the demonetisation phase, the cut-off date for which is yet to be agreed to, MFIs would not lend to a new customer who is delinquent with any other lender. This disrupts credit discipline and encourages delinquency,” said Ratna Vishwanathan, chief executive officer of MFIN.
The move comes as collection rates have fallen at microfinance institutions (MFIs) and some rating agencies have changed their outlooks.
MFI loan repayments are made weekly, fortnightly or monthly. MFIs in Uttar Pradesh and Maharashtra have seen a sharp drop in collection rates compared to others.
“As of February end, our 30-day portfolio at risk (PAR) stands at less than 2% level. The intention of this new rule is to maintain credit discipline among our borrowers,” said Sadaf Sayeed, CEO of Muthoot Microfin Ltd.
Rating agency ICRA last week cut its outlook on Janalakshmi Financial Services and Satin Creditcare Network Ltd to negative from stable citing cash flow disruptions, limited currency supply and political intervention in certain states, such as Uttar Pradesh, Maharashtra.
At the end of December quarter, PAR 30 days for Uttar Pradesh and Maharashtra stood at 28.72% and 9.10% respectively, according to the MFIN quarterly report.