Cibil to start microfinance credit info bureau

Cibil to start microfinance credit info bureau

Mumbai: Credit Information Bureau of India Ltd (Cibil) on Thursday signed partnerships with 31 microfinance institutions (MFIs) to start a microfinance credit information bureau.

The 31 MFIs, which are part of the Microfinance Institutions Network (MFIN), a self-regulatory organization of non-banking finance companies, will now share borrower information with each other. The information will be maintained by Cibil.

Microfinance institutions that disburse loans to low-income groups until now had no tool to measure the creditworthiness of their borrowers, most of whom tend to be outside the formal banking system.

An MFI cannot lend more than Rs25,000, which must be repaid in weekly instalments. The default rate in large MFIs is estimated to be about 1%.

However, with many MFIs chasing the same set of consumers, some borrowers have been able to borrow as much as Rs1 lakh from multiple MFIs, repaying which is typically beyond their means. With no credit information to pre-assess a borrower, MFIs are often unable to prevent a borrower from taking multiple loans.

With the real per capita income of many of these low-income borrowers being less than the national average of $1,000 (around Rs45,500), the default rate of such multiple loan holders is likely to increase.

Arun Thukral, managing director of Cibil, said the MFI information bureau could inculcate financial discipline among borrowers of micro-loans and increase credit penetration.

“It will help promote responsible lending and enable MFIs to assess the creditworthiness and current exposure levels of loan applicants," he said.

MFIs are considered essential for financial inclusion, but have been criticized for high interest rates of 24-36%, while their cost of borrowing is only 10-14%.